The Australian Government’s Productivity Commission report on the ‘Economic Structure and Performance of the Australian Retail Industry’ was made public last week. The bicycle industry’s wholesale peak body, Bicycle Industries Australia, wasted no time in delivering its own interpretation of the report’s recommendations concerning online imports.
A December 9 media release issued by Bicycle Industries Australia, titled ‘Australian tax laws give boost to offshore retailing’ began with the following paragraph:
BIA: The Productivity Commission report the ‘Economic Structure and Performance of the Australian Retail Industry’ released today by Assistant Treasurer The Hon Bill Shorten MP has identified that Government tax regimes are not equitable and the Low Value import threshold should be lowered to achieve tax neutrality.
Contrast “the Low Value import threshold should be lowered” with the Productivity Commission’s recommendations [pdf can be sourced from this page] – concerning the ‘appropriateness of current indirect taxation arrangements – contained in the report:
Productivity Commission Recommendation 7.1:
“There are strong in-principle grounds for the low value threshold (LVT) exemption for GST and duty on imported goods to be lowered significantly, to promote tax neutrality with domestic sales. However, the Government should not proceed to lower the LVT unless it can be demonstrated that it is cost-effective to do so. The cost of raising the additional revenue should be at least broadly comparable to the cost of raising other taxes, and ideally the efficiency gains from reducing the non-neutrality should outweigh the additional costs of revenue collection.”
“The Government will reassess the appropriateness of the low value import threshold when it receives the report of the Low Value Parcel Processing Taskforce (see response to Recommendation 7.2).”
In-principle support for a lower LVT, qualified by demonstrably reasonable cost:benefit outcomes in assessing every import above the stated LVT for duty and GST, is not the same as “identifying…the LVT should be lowered”. Further to the above recommendation, the Commission recommended appointing an independent taskforce to review inbound parcel processing and identify an optimized processing framework:
Productivity Commission Recommendation 7.2:
“The Government should establish a taskforce charged with investigating new approaches to the processing of low value imported parcels, particularly those in the international mail stream, and recommending a new process which would deliver significant improvements and efficiencies in handling. The taskforce should comprise independent members, with the Australian Customs and Border Protection Service (Customs), the Australian Quarantine and Inspection Service (AQIS), Australia Post and the Conference of Asia Pacific Express Carriers providing advice. The terms of reference should outline the criteria that any new system must satisfy including: minimising the costs of processing and delivery delays, streamlining the assessment of Customs Duty, user pays, and without compromise to the border protection functions of Customs and AQIS. This review should report to Government in 2012 and propose an expeditious timeframe for its proposed changes. Once an improved international parcels process has been designed, the Australian Government should reassess the extent to which the LVT could be lowered while still remaining cost-effective.”
Government response: Agreed.
“The Government will establish a Low Value Parcel Processing Taskforce to investigate new approaches to the processing of low value parcels, particularly in the international mail stream. The Taskforce will comprise at least three members, including members with logistics and supply chain or other relevant expertise, and will be asked to report to the Government within six months of receiving the Terms of Reference. The Taskforce’s report will provide a comprehensive blueprint for reform of the low value import processing system, with costed alternatives, for the consideration of the Government.”
BIA framed the above Government concurrence as a continued “risk” to bicycle retailers; maintaining bicycle retailers would continue to “struggle to compete with tax laws that favour offshore retailers” while the taskforce assessment took place. David Cramer, Chairman of Bicycle Industries Australia (and founder/MD of Melbourne-based wholesaler BikeSportz), contributed another opinion to the BIA media release:
David Cramer: “It [the Government] can take the report’s recommendation that it needs to lower the threshold and establish a taskforce, which will take another year to examine the issue again. Or it can realise that the longer it takes, the more jobs are at risk. We urge the government to make the decision to lower the threshold now. The combination of tax breaks to foreign retailers along with the costs associated with meeting Australian regulations adds significant extra costs to the purchase price of retail goods within Australia.”
In taking the opportunity to highlight an additional input cost disparity – thereby lending weight to BIA’s claims of import inequities – Cramer chose the BIA’s favorite example of disparate regulatory costs; bike helmets:
David Cramer: “Government imposed taxes and duties automatically increases the cost of helmets the Australian industry sells by up to 40% compared to our foreign counterparts”
No argument in the case of helmets – which BikeSportz is an importer (Lazer) of – as it is true the cost of conforming to Australian helmet regulations is significant*. But what about Australian-specific homologations costs related to importation of bicycles and bicycles parts? After all, the AUD1 billion revenue that BIA claims is realized through domestic retail sales can’t all come from helmet sales?
In general, it costs no more for an Australian company to import off-the-shelf bicycles or bicycle parts than any other market from which parallel imports may originate. In fact, sometimes the bicycle brand/supplier will subsidise, or completely cover, the cost of meeting local regulations (front brake on right, sticker on frame, reflectors, instructions printed on box, etc) to facilitate additional sales.
It should be no surprise that BIA, on behalf of its members, wishes to appear vigilant in the pursuit of “fairness”, but perhaps more real-world examples are required. In addition to contesting the LVT matter with Government, a change-management strategy to assist bicycle importers and retailers adapt to a new retail paradigm would be useful. The BIA media release also bemoaned the “uneven playing filed faced by…retailers”:
BIA: The bicycle industry supports the measures outlined by the Assistant Treasurer to address the uneven playing field faced by our retailers, but believes that in the three years since first raising the issues associated with the low value import threshold, more should have been done to address the inequities in the tax system that affects all Australian retailers.
This is somewhat amusing, given one of BIA’s directors is Shane De Grandi. De Grandi owns De Grandi Cycle & Sport – a wholesaler that also has an integrated retail outlet. Given most retailers don’t have their own wholesale divisions, De Grandi’s own business structure is, in concept, perfectly positioned to create an “uneven playing field”.
Finally, one other statement from BIA’s media release caught my eye:
“Our [BIA’s] research shows purchases from overseas retailers are already 16% of credit card and EFTPOS transactions in our industry, this figure has doubled in the last year alone.”
This is a particularly interesting snippet that deserves additional attention. I’m particularly interested to know the terms of reference, methodology, population size, timeframe and other variables pertaining to the abovementioned research. An update will be posted after BIA is approached for comment.
Note: Cycling iQ received (unexpectedly, as no request was made) its copy of the Productivity Commission’s report after business hours today. This article was inspired by that delivery, so thanks to the Australian Government for the nice surprise. I look forward to reading the report over the Christmas break, regardless of what that infers about my preference in summertime reading^
*Refer to pages five and six of this BIA submission (PDF) to the Productivity Commission
^more on that soon!
I am not fond of the helmet example from BIA… but on to the bigger picture, I have recorded in a short survey with 113 votes that 88% of participants would still purchase overseas if there was the 10% GST added to lower value purchases. Even with duty added, I doubt that it would swing a majority to then purchase locally as the import duty and taxes are only one part of the equation.
Link to survey: http://www.bicycles.net.au/forums/viewtopic.php?f=9&t=39078&start=75
I am all for a fairer system that benefits the industry AND consumers though am wary as the BIA and the Fair Imports Alliance seem to focus on the ‘GST and duty exemption on lower value imports’ as cause of all problems.
What about the volume of $1000+ cycling equiptment purchases entering Australia (with tax and duty paid).
What about trade agreements and exemptions that actually work in favour of wholesalers.
Christopher, thanks for posting a link to the excellent BNA survey. I recommend anyone interested in this topic reads it.
As you mention, BIA and its local wholesale/retail members are focusing too much on taxation/duties; not enough on supply-side inequities and B2C improvements. I haven’t witnessed any industry-wide vision to restore consumer faith in the retail sector. There are some fantastic and innovative retail offerings out there – but these are a minority. Leadership is needed, and I see that as a major role of BIA and RCTA. Ultimately though, peak body resources are limited. Individual businesses need to ensure they drive change themselves; starting with asking what is their identity, brand, USP, etc. Based only on my own experiences, I know many retailers won’t know how to start this process.
Another good article Cam.