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

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