PC to consider protection for retailers

Retail profitability - PC

Retail­er Ger­ry Har­vey had to eat crow ear­li­er this year when his angry cus­tomers (and scorn­ful com­peti­tors) trashed his cam­paign to elim­i­nate the GST con­ces­sion on imports pur­chased on-line. Now, if you read only the report in today’s Aus­tralian news­pa­per, it seems that the Pro­duc­tiv­i­ty Com­mis­sion may be giv­ing com­fort to Harvey’s attack on house­hold sav­ings.

But The Aus­tralian has report­ed only one side of the PC’s analy­sis , describ­ing it, mis­lead­ing­ly, as a “find­ing.”

Last week the Com­mis­sion released an Issues Paper in prepa­ra­tion for its hear­ings on the retail indus­try. Among many ques­tions the paper canvasses—including data on the aver­age prof­itabil­i­ty of the retail­ing sec­tor that sug­gests it is one of the most prof­itable sec­tors of the econ­o­my (click the graphic)—it con­sid­ers the ques­tions raised by Ger­ry Har­vey about the $1000 con­ces­sion­al thresh­old, below which indi­vid­ual import lots are not assessed for GST or, in most cas­es, cus­toms duty.

As The Aus­tralian reports, the PC notes that, in prin­ci­ple, it is “prefer­able” to ensure that all firms in the sec­tor face the same indi­rect tax lia­bil­i­ty. The “dis­tor­tion” cre­at­ed by the import con­ces­sion seems, how­ev­er, to favour con­sumers and the small­est retail busi­ness­es that may arrange to split com­mer­cial ship­ments into small lots in order to qual­i­fy for the con­ces­sion.

In oth­er words, to the extent that the con­ces­sion favours some at the expense of oth­ers, the win­ners are house­holds (no doubt the major­i­ty) and the small­est retail­ers who are appar­ent­ly doing it the tough­est

Prof­itabil­i­ty in the sec­tor may be relat­ed to firm size. Of all small retail enter­pris­es with less than $10 mil­lion in total income (from all sources, includ­ing sales of goods and ser­vices), 47.3 per cent made a loss in 2007-08.

The Aus­tralian does not, how­ev­er, quote the bal­anc­ing con­sid­er­a­tions includ­ed in the PC’s issues paper. Specif­i­cal­ly:

In 2009, the Board of Tax­a­tion con­duct­ed a review which includ­ed some com­ments on the low val­ue thresh­old. It con­clud­ed that any low­er­ing of the thresh­old would like­ly increase admin­is­tra­tive costs for the Gov­ern­ment as more goods were brought into the cus­toms sys­tem in order to account for GST and duty, and the addi­tion­al costs were like­ly to out­weigh any ben­e­fits. More­over, con­sumers (and busi­ness­es) would have to pay dis­pro­por­tion­ate­ly high costs includ­ing GST, duty and admin­is­tra­tive charges to have their goods released from Cus­toms com­pared to the actu­al val­ue of the goods if the thresh­old were reduced (Board of Tax­a­tion 2010).” Extract from “The Eco­nom­ic Struc­ture and Per­for­mance of the Aus­tralian Retail Indus­try”, Pro­duc­tiv­i­ty Com­mis­sion, March 2011

No Comments

Leave a Reply

Your email is never shared.Required fields are marked *