Kogan Laments Foreign Rivals Avoid GST

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The online retailer Kogan.com truly had one of its largest scares when its stock plummeted an outrageous 30% in midday trade on October 29th. This was a direct result of the company’s Global Brand’s slump in revenue by 27%: – a sure sign for investors that the company’s financials may be in the red. This is in stark contrast to the stock’s performance to date; the company had the best performing stock in 2017 on the Australian Securities Exchange, finishing the year with an annual gain of over 300%. The company attributed the huge slump to the introduction of the changes in GST laws that were implemented as of 1st July 2018. The company also remarked that there was widespread avoidance of the GST within the market.

Perhaps the best means of analysing this is by understanding what the GST changes are. The GST changes were introduced as a means of improving wealth distribution within the different states. This was to be done through improving funding for essential services.

The GST (Goods and Services Tax) is an indirect tax that is levied on goods and services with the aim replacing all central and state taxes. This implies that all excise duty, luxury taxes, entertainment taxes, VAT and excise duty are replaced by a single GST rate.

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The GST is comprised of two parts: the central GST and the state GST which may levy taxes on goods equally. Consequently, if a good is taxed 16% then the central GST will be 8% and the state GST will be 8% as well. Before the changes, the GST tax was only levied on goods above $1,000. However, the changes in the GST legislation now implements a levy on goods regardless of price.

Amazon had a relatively slow launch in Australia in December 2017 and seven months later hit another bump: any goods they shipped from overseas would be subject to the changes in GST. The company reported a slight loss in its international net income (as a result of expenses associated with delivery of goods as well taxes). And with the growing market in Australia this would make it much more difficult for Amazon to make this segment of its portfolio profitable. In order to deal with this, the online retailer shirked this responsibility of paying this tax by redirecting all its Australian customers to their international Australian Amazon website effective 1st July 2018. The company promised to add 4 million items to the local website but admitted that this site will be significantly lacking in variety citing complications from allowing Australians to shop on the company’s international website.

EBay, on the other hand, did not follow suite and decided to maintain its current business model. The online retailer cites that it would not want to inconvenience its customers. Traditional retailers feel that the GST changes were long overdue, and have had the effect of levelling the playing field. Some retailers feel that online retailers manage to avoid taxes by taking advantage of mismatching country tax policies or offsetting taxes in different countries while traditional retailers are forced to bear the brunt of taxes in the countries they are operating in.

That’s not all however, Kogan.com was also subject to a notice from the ACCC (Australian Competition & Consumer Commission) to provide materials and documents in relation to a marketing campaign it had conducted in June 2018. The company stated that it was in the process of acquiring all the relevant documents that had been requested and was fully compliant with the ACCC’s requirements. The company also stated that it would cooperate with ACCC.

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