You’re Now a Tax Hostage

Forget about Trump vs Trudeau. The North American trade war may be a heavyweight bout, but it’s just bravado at this point.

Don’t let it distract you from the real trade war. The one that is being waged on everyday Australians.

That’s right, you’ve been roped into a new conflict between ecommerce giants and the Australian government. And you’re going to pay the price for their disagreements…

From 1 July, new Australian tax regulations will be hitting the web. Making sure that e-tailers, as they’re commonly referred to, will have to pay GST.

Previously, GST was only applied to goods bought overseas that were over $1,000. Now that price threshold has been scrapped.

That’s not the shocking part though. No, the real issue is how Amazon.com has responded.

Their plan is to blacklist Aussie shoppers from their international sites. That means you’ll only have access to Amazon Australia. A watered down and frankly insulting offering compared to their overseas sites.

Amazon Australia has about 60 million products listed on its site. That may seem like a lot, and it is. But it’s a far cry from the selection offered to US customers.

Regular Amazon shoppers instead get to peruse over 480 million products online. That’s eight times the amount Aussie shoppers will be able to choose from.

All because Amazon and the government are having a spat. Except as usual, it’s the consumers who end up caught in the crossfire.

Worst of all, Amazon could just be the first to fight back. Other e-tailers may soon follow suit including Chinese giant Alibaba.

Only time will tell how terrible the fallout will really be for everyday shoppers online.

The Aussie online retail rort

If you’re wondering why this is a big deal, well, it’s simple. Last year, Australians spent somewhere between $500 million to $700 million on all Amazon sites last year. Roughly 10% of our international online spending.

Plus, this figure doesn’t even account for the Amazon Australia launch in December. In other words, Australians like shopping on Amazon. We just like their international sites more. It’s only natural, they sell a lot more stuff after all.

But, as you may know, shipping from the UK or US can be expensive. A small order of $100 or so may set you back up to half that price in delivery costs alone. Though, the thing is, you may be saving so much money on that items retail price that you’re willing to pay more for delivery.

See, the problem is that local retailers have a habit of charging more. Now that’s all fine and dandy when it’s justified, say if the product was produced locally.

But, when it’s an imported piece of technology for instance, retailers have a nasty habit of marking up the prices. Sometimes way above the cost of buying it overseas and shipping it yourself. 

In fact, to prove my point I actually looked up an item right now on Amazon. The Echo Spot smart speaker, an Amazon product, right now will set you back AU$199 on their Australian site…

Meanwhile, over on the US site, the Echo Spot is retailing for US$129.99. That’s roughly A$171 as I’m writing this.

An A$28 difference, a pretty substantial saving for the price point of the product.

The only question is how much will the delivery set me back? Well, I can get the Echo Spot delivered for free from the Australian site, which isn’t too shabby. Or, for just US$4.99 I can get it delivered from the US…

For $6.60 more I can get the Spot delivered to my door from overseas. It cuts into my overall saving a little, now sitting at $21.40, but it’s still over a 10% discount. The higher the price of the good, the more you generally save.

Sure, I may have to wait a few extra days, but the money I’m saving usually makes up for that in spades.

We’re getting ripped off. And now with Amazon’s changes, consumers can no longer avoid it.

The price of globalisation

The one group who will be celebrating this change is Aussie retailers. Folks like Gerry Harvey of Harvey Norman have been demanding online GST for years. He believes they need it to compete.

Maybe it will help bump up Harvey’s sales — at least for a little while. Long term though, I wouldn’t hold out much hope.

The world of retailing has been changing rapidly before our very eyes. The old ways that made guys like Gerry rich aren’t as effective anymore.

Jeff Bezos and Jack Ma are the new faces of the retailing industry. Digital is the future — it’s an inevitability. Restricting access or imposing silly taxes to try and limit its growth is just archaic.

Consumers aren’t morons, they will look for the cheapest price if they care about it. Denying them of it won’t end well. Especially when they’ve already had a taste for it.

Scott Morrison doesn’t seem to get that though. He believes his GST changes will ‘level the playing field’. Again, maybe for a time, but we live in a capitalist society.

If these businesses need a helping hand to compete then maybe they should take a look at their business model. There’s a reason why Kogan is now a larger company (by market cap) than Myer — and it’s not because of the GST.

Amazon is making a terrible decision here, and consumers will pay for it. But, in time it may actually prove to be a terrible decision for Amazon.

Unless the local site makes some serious changes, the company’s foray down under may be a massive flop. As it stands right now, I certainly wouldn’t call it a success.

Whether that means a competitor, like say Alibaba, will step up in their place is unknown. Maybe a new e-tailer, whether local or international, will fill the gap.

All we can say for sure is, the customer is always right. And the customer will spend their money where they can get a good deal.

Right now, Amazon Australia isn’t looking like a good deal…

Regards,

Ryan Clarkson-Ledward,
Editor, Tech Insider


Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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