Why A Tax Law Change In Australia Could Impact Online Revenues For US Online Retailers
In August 2015, the Australian government announced an impending change to their tax structure that will impact online retailers serving the market via international shipping. Today, Australian consumers can import up to A$1,000 duty-free when they buy from a foreign retailer. The A$1,000 duty-free exemption is known as the low value threshold (LVT) and it has driven a large cross-border shopping habit among online shoppers in Australia. But change is afoot and retailers should know that:
- Goods and services tax (GST) will be added to cross-border transactions previously exempt. As of July 2017, the Australian government will be expanding its GST collection to purchases previously exempt under the A$1,000 threshold. Additionally, the government stipulates the onus is on retailers to collect and remit the tax: According to the Australian Treasury Department, "For goods with a value of A$1,000 or less, GST is applied at point of sale. Overseas vendors with an Australian turnover of $75,000 or more will be required to register, collect and remit GST on low value goods."*
- Merchants serving Australia via international shipping need to calculate the impact. While cross-border revenues are typically a small percentage of overall online revenues, Australia tends to drive a large part of those revenues today. Retailers serving Australian online consumers with international shipping options either directly or through third party vendors like Pitney Bowes, Bongo International (FedEx), Borderlinx, International Checkout, or UPS i-Parcel will likely take a hit to online revenues from Australian cross-border shoppers when the change takes effect. Retailers will have to decide whether to eat (some or all of) the GST rise or pass along the charges to the consumer. The risk of losing revenues and market share will be especially great for those retailers with a local Australian competitor that has similar products, competitive pricing and more flexible fulfillment options.
- Certain product categories will likely be impacted more than others. While the details of the change are still unfolding, Forrester expects the government will create a tariff structure that that includes protective measures for its local industry. As such, the GST will likely vary based on product categories. For example, the domestic apparel industry is growing in Australia, so we expect the change in GST will require online shoppers in Australia to pay higher taxes on apparel from foreign retailers than other categories like consumer electronics and household goods.
- It's not just for physical products, digital goods will be taxed now too. This GST change will also impact cross-border purchases of digital goods like software, gaming and media streaming. Merchants in these categories, like their physical goods counterparts, will have to calculate the impact of the increased GST and revise their pricing strategies and/or revenue forecasts accordingly.
While the debate rages on about whether this GST change will benefit or harm the Australian government, the tax payers and/or the merchants in any significant way, it's certainly another indication that eCommerce competition in Australia is heating up.
What do you think? What impact will this have for the Australian eCommerce market? Will more of the eCommerce market share go to local players who can offer quicker, cheaper and more flexible fulfillment options?
*Obtained via email interview, March 7, 2016