As an IT professional it saddens me to see a shallow-thinking reportage around any proposed tightening of the Australian Internet sales tax system. The Australian retail sector wants protection from a global market of cheap Internet goods. However, this is clearly a proposal to increase a non-tariff trade barrier between Australians and an international market (in contravention of where World markets are focused).
Australian Retailers Call for a Lower e-Tax Threshold
In many ways, I’m not a big fan of globalisation when it gets hinged to obscene profit maximisation, hyper-consumerism and the exploitation of human factors of production that border on (and often include) slavery. That $7 shirt comes with a filthy cost; as does the conflict mineral coltan that winds up in mobile phones and computers as tantulum so we can have smaller, faster and cheaper gadgets. The Congolese are probably correct when they say every SMS sees blood drip from our fingertips.
That being said, I want to focus on repetitious calls from the Australian bricks-and-mortar retail sector for the Government to lower the tax-free threshold on Internet transactions. They want Australian consumers to pay more tax in the hope that it could increase Australian retail profits. Which, on the surface, is win-win for the Government and big business but hardly a win for consumers.
Current Australian law has a tax-free threshold on transactions under AUD$1,000.
If we look at some simple numbers, lowering the threshold on individual transactions to $400 would give the Government a small jump in revenue. But, due to the size of the price disparities involved, I honestly fail to see how a lower tax-free threshold could realistically protect, or even benefit, bricks-and-mortar retailers.
A Lower Threshold will not Repatriate Australian Customers
With the current threshold, a $1,000 transaction would provide $100 taxation (making the purchase $1,100 in total). This in no way off-sets the savings that can be had from an international purchase. Let’s look closely at a few smaller purchases I’ve made over recent years (below the e-tax threshold):
- Epson V600 photo scanner from Amazon at $300 rather than the local price of $600+ (it’s a lot extra to pay for warranty)
- Two hundred archival photo sleeves for under $70 when the local price would be $200
- Several cameras and accessories for under $500 when the local price of one camera would have been around $400
In each case these prices included shipping costs respectively of around – $40, $38 and $150. And I generally piggyback items into that shipping to maximise the savings. So, even with those shipping costs, the purchases were more than competitive in regards to local prices, options and availability. In fact, if you added a mere 10 per cent taxation onto those prices I would still purchase them online for the significant savings.
The problem local bricks-and-mortar retailers experience is really one of globalisation and market access. The problem of being small fish against the big players. The problem all small businesses face in a competitive world.
The reason you pay less for online goods and services is the seller can keep costs low through economies of scope and scale, disintermediation (cutting out the middle-man) in the supply chain and not having to pay for unnecessary staff or buildings. Low overheads, large customer bases and constantly perfecting distribution systems. Each item can be produced and sourced in massive volume and expedited to the customers happy hands.
What Australian Retailers are Doing Wrong is Fundamental
Meanwhile, we see large Australian retailers employ e-commerce strategies that charge the same premium price points as their bricks-and-mortar stores. Regardless of the lower overheads in serving customers online. Regardless they say they can’t compete with the international presence. And regardless that their challenge is to be competitive and to figure out what to sell to who within the realities of the market. It’s like an ice-cream vendor complaining that the eskimos don’t appreciate the double cones! Sigh.
A truth of business marketing is that the last place to compete with a product is price. That always ends with a race to the bottom and low profit margins.
Instead, Australian bricks-and-mortar need to compete on features, quality, better service and value and play to their localisation advantages – proximity on the ground, culture, ability to provide a sales face, ease of returns and trust.
Sadly, it’s easier for the Australian retail sector to blame consumers and sow a myth among Australians that a larger tax on consumers might plug a giant leak in their business models. In effect, the myth that Australian businesses perpetuate is that they need sovereign protection from international traders.
They don’t; they need to effectively compete in the market or sink. It’s a global market economy. That is the reality of contemporary business management – if you don’t want to compete with international businesses you have no choice because they are already competing with you.
Conclusion: Compete Better, Move Faster, Serve Effectively
I’d recommend the first step Australian bricks-and-mortar retailers take is to stop charging store prices for serving customers on the Internet. Be competitive, or accept that they need to change their business models. Be agile, or accept that they need to learn how to serve customers better; and focus on perfecting customer service.
Having a loyalty club IS NOT a relationship with local customers. At least, not if you’re charging them store prices for the privilege.
Tommy Wong, a lecturer from several MBA units, once said in an International Business Management lecture to imagine the customer has your money in their pocket. Your priority is to figure out how to convince them to give it back to you. What can you do to convince them that you’re trustworthy, that your product / service is better, that you deserve their patronage?
In summary, the myth sowed by Australian retailers doesn’t hold up. And, as a Government boost to the tax coffers, a lower e-tax threshold would be difficult to police and provide low returns for the effort. What Australian businesses need to do is adapt and overcome. It’s our challenge to be “outstanding” rather than our burden to be in the Antipodes.