Australian retailers may be celebrating but consumers will be paying more for overseas goods, after a Productivity Commission endorsed the collection of Australian GST on low value purchases made overseas.

The Turnbull government passed the new Treasury Laws Amendment (GST Low Value Goods) Bill 2017 in June, laying out a scheme for the collection of GST on overseas purchases from overseas retailers shipping products to Australians from July 2018.

It received immediate support from the Australian Retailers’ Association (ARA), which labelled it a “much-needed” policy that would allow Australian retailers to “trade on the same level playing field as our international competitors.”

Currently, a customer pays no GST on items purchased from overseas sellers if the amount is under $1,000. From mid-next year, GST will be collected on all items purchased, regardless of their value.

The new system targets overseas online merchants with Australian turnover of $75,000 or more, who will be required to register for, collect, and remit GST to the Australian government. To broaden its reach and centralise collection points, the policy also applies to online marketplaces and ‘redeliverers’.

Counting the cost

The policy “is the most feasible among the imperfect alternatives at this time,” the Productivity Commission report concluded, noting that it would “go some way to improving tax neutrality” between imported and domestic low-value goods.

A 2014 Parliament Economics Section white paper noted the changing cost dynamics of the market, and the new Productivity Commission report found that rapid growth in online sales had increased the potential windfall enough to justify the elimination of the low value threshold (LVT).

Senate hearings have estimated revenues from the scheme at around $300m in the first three years and $130m in the third year alone – enough to “significantly outweigh” administrative costs for the scheme. These costs are high enough that a previous Productivity Commission assessment in 2011 recommended that the LVT not be lowered “unless it was cost-effective to do so”.

NAB’s latest metrics of online sales suggests that around 20 percent of Australians’ more than $23b in annual online shopping came from international sources. These sales are category-heavy, with 55.6 percent of department-store purchases, 50.3 percent of toys and 37.6 percent of online fashion purchases coming from overseas.

Domestic online retailers, by contrast, dominate the purchases of groceries, personal items, and homewares.

Although half of all toys bought by Australians come from overseas, revenue from toy purchases represent just 9 percent of international online revenues. This suggests that toys are a key low-value purchase that would be front and centre when the new legislation comes into effect.

Anti-consumer outcomes?

Retailers and government authorities see the new policy as a lifeline for domestic retailers: in his second-reading speech, Treasurer Scott Morrison called the new arrangements a fix to the “unfair and distortionary GST low-value exemption enjoyed by foreign sellers since the introduction of the GST in 2000”.

Yet not everyone is convinced. Consumers shop overseas for reasons other than price: with just half of Australia’s retail businesses operating an online presence, many Australian consumers are looking overseas due to the greater availability of brands and styles.

For those shoppers, the imposition of a 10 persdent premium on the price may well not be a deterrent – and it could actually limit choice, with an incensed eBay publicly threatening to block Australians from buying from its overseas vendors if the new policy took effect.

Critics such as RMIT economists Sinclair Davidson and Chris Berg have labelled the system as an “absurdity” that will reduce competitive pressure within the domestic economy and “expose Australian consumers to government-sanctioned higher retail prices.”

Whatever the results of the new policy, its imposition will resolve a longstanding debate amongst the retail community and generate new revenues for the government’s coffers. Retailers and government authorities will score it as a win, but – as always – consumers will ultimately shop with their fingers.