States support lowering GST threshold

Lowering the $1,000 threshold for charging GST is on the agenda for the federal and state treasurers this week.

The Treasurers are a meeting in Canberra on Wednesday morning, the first since the Liberal party took office. News reports suggest that the treasurers will consider lowering the GST-threshold in a move to increase state government revenues.

While online shopping overseas is only a small part of the total retail sector it’s a fast growing trend and unfair for local retailers. Harvey Norman (ASX: HVN) boss Gerry Harvey has repeatedly called for the GST threshold to be lowered. Likewise Premier Investments (ASX: PMV) chairman Solomon Lew and department store retailers Myer Holdings (ASX: MYR) and David Jones (ASX: DJS) have also repeatedly stated that the GST threshold treats local retailers unfairly.

So far, New South Wales, Tasmania, Victoria, South Australia and Queensland have all thrown their support behind lowering the GST threshold. The main argument against the move is that it would cost more than the revenue raised to implement. But that ignores one vital point. If overseas retailers were instructed to collect the GST and remit it to the Australia government, there would likely be very little cost to the government.

Several large US companies already have facilities in place to collect taxes for a number of US states as well as for the UK. Canada has a C$20 threshold before tax is applied, while the UK has a £15 limit before taxes are levied. If they can do it, why does it seem so hard for Australia to implement?

Consumer group Choice says that lowering the GST free threshold would make purchases much more expensive and consumers will end up paying the difference anyway. But once again Choice appears to assume that the delivery companies would have to collect the GST, rather than the offshore retailers.

Foolish takeaway

The consequences of not lowering the GST threshold could be the loss of thousands of jobs in the retail sector. As a worst case scenario, Australia could see its retail industry brought to its knees. Should the level be lowered, it could also prove to be a boon for our local retailers by encouraging consumers to shop locally.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. You can follow Mike On Twitter @TMFKinga

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