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Shopping online to cost 10% more

Consumers could soon be forced to pay GST on online purchases of goods from overseas over $30, if our state governments get their way. NSW’s treasurer last week lobbied the Federal government to lower the GST threshold and has received support from Victoria, South Australia and Queensland.

While that may be good news for our retailers, its unlikely to make a significant shift in purchasing patterns.

Myer Holdings (ASX: MYR) yesterday reporting a 13% fall in net profit for the 12 months ending 31 July 2012 to $139.4 million. One of the main issues for the department store retailer is aggressive competition from online retailers. That has eaten into the company’s margins, and with high fixed costs, the company needs new ways of servicing customers at lower costs.

Myer is among a host of Australian retailers that have been slow to adapt to the ‘new’ paradigm of online shopping. Harvey Norman Holdings (ASX: HVN) and David Jones Limited (ASX: DJS) have both been criticised for not moving a large percentage of their sales online fast enough.

The majority of Australia’s retailers have been stung into action and are now running fast to close underperforming stores, improve service, cut discounting, move more sales online and trying to keep their customers coming back.

But it feels like they’ve been doing that for some time now, and as yet we don’t seem to be seeing much improvement. Perhaps no surprise then the National Retailers Association (NRA) has again called for the government to charge GST on internet purchases from overseas that are below $1000. The NRA suggests that the government is forgoing $2.4 billion in revenue over the next three years without it.

Other countries have already imposed their own schemes with the UK limit set to £15, although the federal government has refused on the ground that the costs would exceed the income, and it was difficult to enforce on overseas retailers.

Consumer group, Choice has also weighed into the debate suggesting that the main issue is global differential pricing by manufacturers. As a simple example, Sony sells its TVs to US retailers at much lower prices than it does to Australian retailers like JB Hi-Fi Limited (ASX: JBH), so right off the bat, JB Hi-Fi is at a disadvantage.

Foolish takeaway

In only seems a matter of time before GST is introduced on overseas purchases under $1000, but whether that will help turnaround our retailers is debatable.

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Motley Fool writer/analyst Mike King owns shares in JB Hi-Fi. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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