With one month until new GST rules come into force, online marketplaces are working out how to best implement the changes.
The most drastic move has come from Amazon which announced today it will no longer allow Australians to make purchases from Amazon.com or its other international sites after July 1. Instead, Amazon will redirect Australians to Amazon.com.au.
In the many, many years before Amazon’s launch in December last year, Australians simply conducted their online shopping through Amazon’s global websites. But now it’s pushing all its Australian customers on to the local site in order to comply with the new tax being applied to low-value international purchases.
That means Australians will have a smaller inventory to choose from. There are 60 million products available on Amazon.com.au versus an estimated 500 million products globally. Amazon said it will also launch the Amazon Global store to give Australian shoppers access to an additional four million products that were previously only accessible on Amazon.com.
In effect, Amazon’s reaction to the regulation cuts off the long tail of products available to Australians from around the world. But not all marketplaces are planning to follow Amazon’s lead.
Update 1/06/2018: Juozas Kaziukėnas, founder of Marketplace Pulse, told Which-50 the move will deliver a positive lift to the Amazon.com.au website (more on that later) although some consumers might miss items they used to buy before.
He also noted that Australia isn’t alone in trying to enforce tax rules for online marketplaces.
“Other countries worldwide are trying to figure out how to tax marketplaces too, especially when foreign sellers are involved. It’s estimated that billions of dollars are not collected by states in the US because sellers do not do it. So if anything Australia is ahead in this by enforcing marketplaces to comply, as opposed to countries like the US where the government is still unsure how to handle this,” Kaziukėnas said.
Currently, purchases made from overseas above $1000 are taxed at the border.
The new rules mean that from July 1 GST will apply to overseas purchases under $1000. Online marketplaces have argued they aren’t equipped to collect GST because they are in the business of connecting buyers and sellers, not moving goods.
If international vendors selling a product on a marketplace do not collect the 10 per cent GST then the responsibility for collecting the tax falls to the marketplace.
“We do not distribute or supply tangible products and our business models do not support the collection or remittance of GST,” Alibaba, eBay and Etsy said in a joint-submission made l to the to the Productivity Commission last year.
“Our companies allow businesses and individuals to create online shop fronts. It is the sellers using our marketplaces who own, control, warehouse, price and distribute their products. This is why Australian sellers using our platform collect and remit GST. Our businesses do not.”
For its part, both eBay and Alibaba have said they are working on a fix that won’t affect consumer’s experience on their platforms.
An eBay spokesperson said, “we are working on a solution that enables Aussie buyers to continue to shop from all eBay sites, while also capturing the required GST.”
“This requires major changes to eBay’s global systems and we are working to have these ready by 1st July.
“Ebay’s GST solution will allow us to collect GST from buyers purchasing in any currency, from any seller, from any eBay site. It also allows imports to Australia to continue without any structural barriers, redirects or blocks to the buyer experience.”
Meanwhile, Alibaba, which is impacted by any purchase under $1000 on its AliExpress platform, has said it is working on a solution to comply with the rules.
“The implementation of this tax is difficult and requires many changes to Alibaba’s systems. At this stage, our priority is to ensure that we prepare the business for the change on 1 July 2018 and that the consumer experience on our platforms is not adversely impacted by these changes.”
Alibaba’s export and B2B business is covered by existing legislation and are not impacted by the new GST rules.
Compliance versus cost
Concerns remain about the level of compliance with the new GST rules, how it will be enforced on smaller foreign operators and what it will cost to administer the tax versus how much it will raise.
UNSW Business School Lecturer in Taxation & Business Law, Kathrin Bain, discussed the issue earlier this month.
“The current plan is the ‘vendor registration model’, whereby overseas retailers who send parcels to consumers in Australia will have to register for Australian GST if their turnover exceeds $75,000 a year,” Bain explained.
“But that is a fairly low level and would be subject to currency fluctuations. Will a small software company in China or a bookseller in Wales want to register with the ATO? It looks doubtful at the moment. Additionally, when it comes to domestic sales, the ATO has always taken the view that eBay is not the ‘supplier’ of goods for GST purposes.”
“It is up to the individual seller, if required, to register for and charge GST. Under the legislation that will apply to low value imports, the liability to remit the GST applies to the operator of an ‘electronic distribution platform’ (such as eBay) rather than individual sellers.”
“Unless the legislation can be effectively enforced, there will be low levels of compliance, resulting in a minimal increase in GST revenue.”
An upside for Amazon?
Redirecting Australian shoppers onto Amazon.com.au could have a positive effect on Amazon’s Australian business — kick-starting the network effects that make marketplaces so appealing.
An increase in traffic through the Australian site will likely translate to higher sales through the platform, which would then attract more sellers to join the marketplace. This, in turn, broadens the range of products available and pushes down prices.
Not to mention Amazon’s email to customers announcing the changes came with an apology and a $20 voucher for Amazon.com.au and, stimulated plenty of free media coverage (including this article) to remind Australians they are indeed active in Australia.