As of July 1st, Amazon will be switching off access to the main Amazon.com site for its Australian customers due to changes in the law regarding GST. This has led to a lot of outrage and anxiety among both Aussie buyers and international sellers, who are nervous about losing their access to low-cost goods and the Australian market, respectively. However, we see it as a hidden opportunity for international Amazon sellers. Here is your guide to making the most out of these changes.
In Australia, GST – Goods and Services Tax – of 10% is charged on most products and services as well as some other items that are either sold or consumed in Australia. It applies to most Australian businesses, as the minimum annual turnover (not profits) required to pay GST is just A$75,000.
Businesses outside of Australia, including Amazon, only have to pay GST if they were selling digital products, such as e-books, movie downloads or apps, or if they were providing services valued over A$1,000. Recently the law was changed to extend GST to international businesses that import low-value products worth less than $1,000 to sell to Australian buyers. This includes fashion items, books, electronic items, toys, and more. From July 1, 2018, the application of GST to products under A$1,000 will come into effect.
According to the Australian Government, the aim of the new GST legislation is to ensure a level playing field for local Australian businesses which ultimately will serve to encourage Australians to buy locally. On the surface, the change in the GST laws is an obvious setback for many international sellers. Adding an extra 10% to the price of goods for the Australian market could dampen demand and require global marketplaces to build infrastructure to gather information on their buyers’ location before presenting them with a final price that includes GST.
Online marketplaces, like Amazon.com.au, are now responsible for collecting GST from all their third-party sellers. The process is technically complex, which is why Amazon.com has decided to close its global site to Australian buyers, leaving them with access only to Amazon.com.au. While this might be less-than-ideal news for cross-border importers, it’s a golden opportunity for sellers on Amazon Australia.
Here are some reasons that GST is a blessing in disguise for Amazon.com.au retailers.
While Amazon.com has closed its doors to Australian buyers, Amazon.com.au is still very much open for business. With the imminent launch of Amazon Prime, in the coming months, Amazon fans Down Under will be prompted to switch their accounts from the US site to the AU site, bringing the prospect of increased business for those sellers on Amazon.com.au. Additionally, many major brands used to selling online directly to Australian customers will need to add the complexity of charging and paying GST and as such will likely seek to slow their direct sales in the market. With a reduction in competition from Amazon’s global sites and direct sales from company online stores, Amazon.com.au retailers will have a golden opportunity to grow their business in the next few months.
Aussies aren’t going to stop wanting to pay less for the same products. They’ve seen the huge price differences between their local stores and Amazon.com and they don’t want to go back to being forced to pay high local prices. Currently, the same branded goods can be sold locally in Australia for up to twice as much as they cost on global retail sites. Compared to this, GST only adds an extra 10% on the price. Even with GST, global online retailers can remain extremely competitive with local bricks and mortar stores for the same goods.
Adding GST to imported goods valued below A$1,000 helps close the immense price gap between global and local items. If imported items become slightly more expensive, local sellers on Amazon Australia should appear more competitive in comparison, which will encourage Australians to buy from local online sellers and boost Amazon Australia’s sales.
Amazon is about to open its second distribution site near Sydney, and Amazon Prime Australia is on the cusp of springing into existence. These twin blessings of free shipping and fast delivery can bring down prices on Amazon.com.au and increase the attraction of locally-sourced branded items, enabling sellers on Amazon Australia to be even more attractive in the local market.
Amazon.com.au isn’t the only global marketplace that’s continuing to sell in Australia. Tophatter, Joom, Wish, eBay, and Lazada are just a few which are still shipping direct to Australia while charging GST, showing that GST is no barrier to successful cross-border trade. eBay, in particular, has shown that local merchants can make more local sales on a global eCommerce platform, just like on Amazon Australia.
Australia still represents a huge eCommerce market which hasn’t been fully tapped. Year-over-year, Australia’s eCommerce spending keeps growing. In 2017, online purchases grew 19.2% and total online spending in 2017 reached A$21.3 billion, a growth of 18.7%. The market is expected to keep growing annually at a rate of 8.8% between 2018 and 2022, even with the impact of GST.
User penetration is still at just 51% in 2018, giving plenty of room for growth as online shopping spreads across the country. According to the Australia Post, online marketplaces are here to stay, as shown by their 2017 growth of 74%. In addition, Australians are prolific online shoppers with an average revenue per user (ARPU) of A$840, which stands above China and ranks eighth worldwide.
The opportunity also extends to other key marketplaces in Australia namely, eBay.com.au (Australia’s largest marketplace), Catch.com.au and more. As Paul Greenberg, CEO and founder of NORA, pointed out, “The flat world is Australia’s biggest friend, not its enemy. And whilst we can expect to see changes in legislation, as an industry, retailers need to keep focused on the opportunities that abound. Australia is a population of 24 million. The global market is over 7 billion. Our retail future is a cross-border one.”
While the extension of GST regulations could be seen as an obstacle for international sellers targeting the Australian market, sellers who use Amazon.com.au can look forward to a golden opportunity, especially in the busy shopping months of October to December.