Up to 33,000 jobs in the retail sector could be lost by 2015 if the GST exemption on imported goods is allowed to continue, with retailers warning that tough conditions are set to continue throughout 2014.
Currently, a loophole exists that allows customers to purchase foreign goods and import them into Australia, GST-free, provided that they hold a value below $1000. This gives Australian retailers' offshore competitors a substantial price advantage, resulting in more and more Australians purchasing goods online to take advantage of lower prices.
According to Myer's (ASX: MYR) chairman, Paul McClintock, there is no longer a barrier to shutting down the loophole and believes that the Coalition government will soon begin to act on closing it. McClintock informed investors at the company's annual general meeting that thousands jobs would be lost should the loophole remain open.
Whilst it is a federal government issue, state governments are also becoming more involved in the debate as they are the ones that are losing out on the revenue. McClintock said "Part of it is waiting to finally get an agreed position about how you do it (administer the collection of GST on imports), but I do think the government has a process now running which should deliver that pretty quickly."
As the popularity of online shopping continues to surge, retailers including Myer, David Jones (ASX: DJS), Harvey Norman (ASX: HVN) and JB Hi-Fi (ASX: JBH) should expect tough trading conditions to continue in the near future, particularly as business and consumer confidence remains volatile.
Foolish takeaway
By removing the GST-free threshold, it is likely that many consumers will return to the local retail scene to purchase their goods. At the same time however, any attempt to charge GST on the imported items could also trigger a backlash from Australian consumers, which the government certainly doesn't want.
