Proposed “internet tax” could add 37% to online purchases

Online retail is booming, but this could remove the benefits of shopping online?

a woman

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Based on the National Australia Bank Ltd’s (ASX: NAB) online retail sales index for December, Australian consumers spent $14.7 billion online in 2013, growing at an alarming rate of 12.6% year-on-year.

Given such figures, investors have been fearing what the future holds for Australia’s traditional bricks-and-mortar retail industry, particularly with the growing popularity of international retail giants including Amazon.com, Inc. (NASDAQ: AMZN) and eBay Inc (NASDAQ: EBAY). However, this could all change should the Australian government decide to lower the $1,000 GST threshold on imported goods.

Based on the current system, GST charges do not apply for products purchased from a foreign store unless they exceed $1,000 in value. This comes as an incredible disadvantage for local retailers including Myer Holdings Ltd (ASX: MYR), David Jones Limited (ASX: DJS) and Harvey Norman Holdings Limited (ASX: HVN), who have been lobbying for the abolition of the threshold.

However, consumer group Choice has made a submission to the Australian Government arguing that lowering the GST threshold below the $1,000 mark would far outweigh the benefits, whereby consumers could be hit with a 37% “internet tax”, paying in excess of $823 million a year. Furthermore, Choice argues that such a system would cost more to administer than it would raise in revenue.

If a British-style tax processing fee were to be added in addition to the GST, the average overseas internet purchase worth $38 would end up costing $56 while a $20 online purchase could end up costing $36.

Choice Modelling
Source: Sydney Morning Herald

Foolish takeaway

In addition to making online international purchases far more expensive for Australian consumers and wiping out competition, it also undermines the reasons that most people shop online.

Research by the consumer group shows that the main reasons Australians buy online is to shop whenever it suits them while the convenience of getting goods delivered is also a major factor. Only 12% of respondents nominated saving on duties and taxes as their reason for doing so.

Motley Fool contributor Ryan Newman owns shares in Amazon.com, Inc.

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