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Some online watch retailers are offering customers the chance to avoid paying GST
Some online watch retailers are offering customers the chance to avoid paying GST

Online retailers dodging GST

Some overseas-based watch retailers have developed a new advantage over Australian suppliers and retailers, illegally offering customers the chance to avoid GST on products that exceed the tax-free threshold.
The threat posed by online shopping to physical retail stores never escapes business headlines for long. While a lot of the negative coverage may be overblown, some nefarious online businesses are developing new strategies of beating bricks and mortar pricing by breaking the law.

One such threat involves overseas-based websites offering customers an opportunity to avoid the mandatory GST tax placed on items priced more than $1,000.

Last week, the Australian named a Hong Kong electronics retailer, eGlobal, that offers to "prepare an adjusted invoice upon customer's request", so that purchases appear to cost less than the $1,000 tax-free limit, when the customer has actually paid a greater price.

Peter Petzold, CEO of German and Swiss watch importer Define Imports, confirmed to Jeweller that he was “definitely” aware of instances where online watch retailers were producing fake invoices for Australian customers. He said he had also seen emails from online retailers discussing the GST fraud with potential customers.

Penzold said Australian retailers were battling on price with online but the GST rort gave an unfair advantage to online shops, which he believed are typically based in Hong Kong and Singapore.

“A lot of (physical) retailers can easily keep up with European prices, the problem only kicks in when an online retailer starts selling GST free,” he said. “All of a sudden a watch can be 300, 400 maybe 500 dollars cheaper.”

Executive director of the Australian Retailers Association (ARA) Russell Zimmerman told SmartCompany that the ARA was very concerned about the deceptive tactics.

"I am extremely aware of that happening,” he said. “We have spoken to government about it; I was in Canberra on Monday last week and we took it up with a number of ministers.”

Zimmerman said that the issue was not only costing Australian retailers lost business, but that the government was also missing out on tax dollars.

"I think it is far more widespread than what the government is aware of," he said. “We know it is particularly happening out of China – goods are being sent into the country and coming in under the threshold on the invoice, but worth a lot more.

"The states are losing out on $650 million worth of tax that is not being collected on what we currently know is coming through on a threshold set at $1,000,” he added. “How much more is being lost because various goods are being brought in which are undervalued?"

Ian Winterburn, chief financial officer, Wallace Bishop said he does not have any first hand experience or knowledge of the practice, however he described the current arrangements as “the worst piece of taxation legislation I have ever seen in my life. We are paying a reverse tariff to an overseas competitor to compete against Australian companies. If you look up taxation theory it is the worst thing to do.”

Winterburn also sits on the board of the National Retailers Association and says the current arrangements of the $1,000 tax-free threshold acts as a disincentive for business. “The politicians make some lame brain excuse about it being too hard or too expensive [to fix].”

Wallace Bishop currently has over 50 stores as well as six Hardy Brothers stores. “We [Wallace Bishop] are trying to sell online. We collect the money and pay the GST to the government and we do the right thing. We just want a level playing field,” Winterburn added.

Penzold did, however, say that reputable online and shopfront retailers possessed a distinct advantage over crooked dealers, by being able to guarantee that a product’s warranty will be honoured.

“The clients may buy online overseas and save GST, but what customers can’t see is that they can run into trouble with warranty work,” he said. “Our suppliers support the market and similar prices, and only support warranty work from our market where GST has been paid.”

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