The Productivity Commission, the Australian federal agency responsible for recommending key Australian government economic reforms, has recommended that the AUD$1,000 threshold exemption from Australian Goods and Services Tax on imports, should be “lowered significantly”.

The GST-free threshold for imports predates the concept of online shopping. Conventional retailers have repeatedly expressed concerns over their disadvantage against online competitors with the latter being able to sell products free of GST whenever the online price is below $1,000.

The draft report, released 4 August 2011, is part of the Australian Government’s review into the “Economic Structure and Performance of the Australian Retail Industry”.

In its draft recommendations, the Productivity Commission has agreed in principle with Australian retail industry bodies that there is a need to lower the tax threshold on overseas imports in order to promote “tax neutrality” with domestic retail goods.

However, the Productivity Commission noted the Government should not lower the GST-free threshold until it has determined that it would be cost-effective to do so. The Productivity Commission found that lowering the threshold would greatly increase the cost of collecting the tax. Concerns were expressed in the report that if the GST-free threshold were to be lowered to $20, the cost of collection would be three times the revenue generated.

The Productivity Commission recommended that the Government ought to establish a task force to investigate new approaches to minimising costs and delivery delays for international parcels. Once the international parcels process is improved, the Government could then reassess the cost-effectiveness of lowering the GST-free threshold for overseas retail imports.

Retail planning laws reform angle

In addition to tax-related reforms, the draft report also proposed a reassessment of Australian State and Territory zoning laws in relation to retail usage of real estate. In this regard, the Productivity Commission recommended: “Local governments should significantly reduce prescriptive planning requirements to facilitate new retail formats locating in existing business zones and ensure that competition is not needlessly restricted.”

The Fair Imports Alliance, which consists of several Australian-based industry organisations including the Australian Retailers Association and the Australian Fishing Trade Organisation, has welcomed the release of the Productivity Commission draft report.

The Fair Imports Alliance said that the recommendation for the GST-free threshold to be lowered is “great news for retail”, and welcomed the proposed reform of inefficient parcel processing through Customs.

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