In a bid to increase their competitive position against the online retail sector, Australian retailers have upped their bid for the abolition of the $1,000 GST exemption threshold for overseas goods.
Based on the current system, when a product is purchased online from a foreign store, GST charges do not apply unless the product exceeds $1,000. This is an enormous disadvantage for local companies such as Myer (ASX: MYR), David Jones (ASX: DJS) and Harvey Norman (ASX: HVN), as online stores are able to charge even lower prices for their products.
The Australian Retailers Association (ARA) believes that the GST exemption means that there is not a level playing field between local and foreign retailers. After all, brick and mortar retailers are already struggling to compete with the convenience offered by online shopping, as well as the availability of a wider array of products (given that consumers can shop from stores all over the world with a click of a button).
Just last week, the Australian Bureau of Statistics released data that showed that Australians had spent more than $7 billion at overseas online shops for the 2012-13 financial year. According to Commsec chief economist, Craig James, the level of overseas purchases are "rising at a 20% annual pace." In comparison, domestic retail spending is growing at just 3% per annum.
However, the ARA is in for a tough battle, given that Prime Minister Tony Abbott and Treasurer Joe Hockey have both ruled out making changes to the GST system. Although a Treasury working group is looking into the issue, such an overruling of the exemption has previously been rejected. This is because the cost of imposing and administering the GST would be greater than any tax that it collected.
Foolish takeaway
Australian retailers are facing an uphill battle, but many are taking the necessary precautions to continue competing with the growing threat.
Myer is one company that has expanded its online presence. Although the company is still by no means risk-free, it is focused on improving its competitive position and, topped with a 6.9% dividend yield, poses as an attractive prospect moving forward.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.
