Australians could lose access to foreign retail websites avoiding GST and import fees under a crackdown being considered by the federal government to address “unfair competition” on local businesses.
Amid ongoing industry concern over the effect of cross-border e-commerce on Australian retailers, Small Business Minister Michaelia Cash has raised the prospect of geo-blocking dodgy websites with Treasurer Josh Frydenberg and Home Affairs Minister Peter Dutton.
In a letter sent to Frydenberg, Dutton and their respective assistant ministers late last year, Cash said local businesses were “competing with overseas entities on an uneven playing field” and internet service providers could be asked to block competitors which are deliberately defrauding the Commonwealth.
“It is open to the Commonwealth to request internet service providers disrupt access to specified online services by blocking the offending website(s),” Cash said in the letter, citing Australian Small Business and Family Enterprise Ombudsman (ASBFEO) advice.
The comments reference longstanding calls from local retailers, particularly in the toy and hobby, consumer technology and footwear categories, to address international websites undercutting their prices, supported by fraudulent invoices that understate product prices and omit payable GST.
In one case examined by SmartCompany, an international retailer declared goods sold for over $1000 as a model kit valued at less than $200 on invoices, escaping customs duties and handling fees worth over $100.
By valuing goods under $1000, international retailers can generally escape duties, taxes and other charges on goods at the border.
One retailer, RC711.com, which is owned by Hong-Kong based Joyplus Trading, blatantly describes the practice on product pages within its website.
“We will declare the parcel as toy hobby model kit at value around US$150 [AUD$208]. Usually can avoid high customs taxes,” a shipping note for a DJI Phantom 4 Drone priced at US$1,199 (AUD$1662) on RC711’s website reads.
RC711 also states on its website customers are responsible for paying all “import taxes and any other extra charge”.
In other cases, SmartCompany has seen invoices which value $150 in camera parts for less than $3, or drill parts sold for over $70 valued at just $2 on customs declarations.
Livelihoods on the line
The Australian Border Force identified about $170 million in understated border revenue, including duties and taxes, during the 2017-18 year, but retailers say much of the conduct is going unnoticed.
Colin Scott, owner of retailer Frontline Hobbies and distributor Hobbies Australia, has been raising the issue of non-compliance within his industry for a decade and says it is sucking the life out of independent retailers.
“They’re fudging invoices and it’s costing Australian small businesses, in some cases, their livelihoods,” he tells SmartCompany.
Peter Dallimore, owner of 60-year-old Perth hobby and toy retailer Stanbridge’s Hobbies, is currently selling off remaining stock after announcing the shutdown of his business last year.
The retailer, who is the second generation of his family to run Stanbridges, says being undercut by dodgy international retailers has been a thorn in his side for more than a decade.
“It’s such a constant thing. I had a bloke in the other day who put some radio-controlled cars on the counter, he paid $90 for them, I’d sell them for $600,” he tells SmartCompany.
“There’s just no way I can sell them for that.”
A joint investigation between Border Force and the ATO to determine the true extent of the non-compliance is now on the cards, with meetings between both agencies and ASBFEO scheduled in the coming months.
These meetings will include discussions about the use of Section 313(3) of the Telecommunications Act to possibly geo-block offending e-commerce sites, small business and family enterprise ombudsman Kate Carnell says.
“They’re selling products with an unfair advantage over their Australian competitors and they’re breaking the law, it’s quite clear,” Carnell tells SmartCompany.
“There has been a bit of a view from Border Force and others that it’s too hard and they simply don’t have the capacity to have a look at every package that comes in.
“I accept that’s true, but I don’t think that’s even vaguely a reason to do nothing.”
In advice provided to the government in November last year, Carnell proposed overseeing the investigation into instances of overseas-based retailers not paying GST and other duties correctly, as well as possibly taking action where necessary.
In a statement, Assistant Minister for Home Affairs Linda Reynolds office said the government was “aware of the ongoing challenge of importers undervaluing imports to reduce customs and tax liabilities”.
“The ABF [Australian Border Force] takes consistent action to detect and address suspected import undervaluation using strategies such as risk profiling, monitoring trade behaviours, intelligence and industry referrals,” Reynolds’ office said.
“The ABF is collaborating with the ATO on policy reforms to reduce the incentive for customs undervaluation.”
“You’d have to be an idiot”
Affected retailers SmartCompany has spoken to say they are encouraged by the current political noise on the issue, but Dallimore says he’s not holding his breath.
“Their constituents are saying ‘I don’t want to pay more’. The reality is nothing will happen,” he says.
Last year new laws came into effect obliging many international retailers to collect GST on sales to Australian customers valued at below $1000.
But there has been concern compliance with those laws has also been lacklustre.
Dallimore says it’s optimistic to assume foreign retailers will comply with Australian laws.
“You’d have to be an idiot to think the little bloke in Hong Kong will think ‘oh, I need to do my BAS this month’ and send the Australian government money.”
Last year Kogan.com blamed “widespread non-compliance” with low-value GST laws for a dip in its quarterly sales.
“Widespread avoidance of GST has become apparent,” the company said in a statement at the time.
Figures which would reveal how successful the policy has been so far, which SmartCompany understands were due out last year, have yet to be released.
That, according to Australian Retailers Association executive director Russell Zimmerman, suggests there may be something to hide.
“If they had good numbers they’d be out there with them,” he tells SmartCompany.
In a statement, an ATO spokesperson said it has updated Treasury on the implementation of low-value GST laws.
“High levels of compliance”
“The ATO has reported high levels of compliance by foreign sellers and online trading platforms with this measure,” the spokesperson said.
“The ATO will take action against businesses who do not meet their GST obligations and work closely with agencies such as the ABF to ensure compliance relevant tax laws.”
Expected compliance with the low-value GST legislation was raised as a potential issue long before the reforms passed parliament.
In 2017, before government settled on the current vendor collection method (whereby retailers are required to collect and remit GST at the point of sale), eBay publicised Treasury figures which estimated likely compliance as low as 25%.
Low-value GST models where delivery providers such as Australia Post collect GST on low-value purchases have also been raised, while some in the retail industry also advocate a model whereby GST would be collected at the point of a transaction by banks.
But it is understood the government was not in favour of those plans due to concern about compliance costs for Australian institutions.
Eddie Peters, owner of automotive car parts retailer The Honda Shop in Western Australia, says geo-blocking websites won’t fix the issue but accepts it would be a start.
“It won’t fix it, they’ll have another answer,” he tells SmartCompany.
Customers will be able to circumvent any geo-blocking with virtual private networks (VPNs).
SmartCompany contacted RC711.com for comment but did not receive a response prior to publication.