Amazon mutters and backs down in Oz

It looks like Amazon has blinked in its stoush with the Australian government over the "Amazon tax".

The backdrop

Historically, the government has exempted imported goods worth under $1,000 from GST, a 10% value-added tax charged on most goods and services. This meant that $100 item purchased locally incurred $10 more in taxes compared with the same item purchased from an overseas website. This is great if you're, say, Amazon. Frustrating if you're a local retailer trying to compete with, say, Amazon.

When the government announced in May 2018 that it was doing away with the exemption to bring big web-based importers into the tax net, Amazon spat the dummy. "No", said Amazon. Rather than be required to collect GST on sales and pay it to the Aussie government Amazon geo-blocked Australian consumers from using its US-based web-site. Only it's vastly inferior local website and inventory would be available.

So here we are 6 months later and Amazon is waving the white-flag. What changed? Not much.

First of all, Amazon was bluffing. I was surprised when Amazon didn't capitulate on the day the tax change was actually introduced. I expected that they were posturing to prevent the policy becoming a reality, hoping that the consumers of Australia would turn on their politicians when faced with losing access to cheap untaxed imports. Clearly that didn't work, and the tax change arrived.

That left Amazon in an increasingly awkward position. They had just shut themselves out of sizeable market, but that was not their biggest problem.

It's the reputation, stupid

Their biggest problem is reputational. Large organisations trying to exploit tax laws between countries are looked upon more and more dimly. In this instance they're not using the Caymans, or Irish subsidiaries to shift profits, but the practical effect is the same; reduce tax payable, and increase profits. Such behaviour is likely to provoke more and more aggressive policy interventions by governments with little sympathy from consumers.

Everyone knows Amazon has the wherewithal to handle GST deductions and payments for the Australian tax. Once the policy change arrived and Amazon geo-blocked their US site, Amazon looked just like the bullying selfish corporation that it is increasing portrayed as. Amazon is already under fire for the way it treats its workers, they disingenuous way it extracted subsidies for it's "HQ2" location in the US, and it's dominant position in online sales.

Incubating the competition

Pulling out of Australia also left the market open to a competitor. Amazon's dominance in the market perpetuates its continued dominance. Stepping aside means that an existing or new competitor that is willing to serve the market and collect the tax can establish itself. Given that Australia is regional hub for Oceania, the knock-on losses are significant. Did Amazon really want to forgo access to this market from now on? Threatening to shoot yourself in the foot if you don't get your way is one thing; pulling the trigger is another.

Furthermore, VAT and sales tax collection for online sales is an idea who's time has come. More and more countries are looking at this kind of policy change. And Amazon would lose its dominance if it exited any market that implemented this change.

Why do I care

The Aussie government's policy change was entirely defensible and long overdue. A higher GST threshold made sense 20 years ago when small value imports were low volume, and technology to administer the tax collection was expensive. The world changed and policy has caught up. I really dislike corporations bullying sensible policy into oblivion. I have no problem with importing goods that are available more cheaply from overseas, but they should compete with locally sold goods on a level playing field.

New Zealand is implementing an equivalent policy change in October 2019. Australia has fought a battle (and won) that New Zealand may have lost had it gone first. This is simply a matter of size. The Australian market is small enough to establish a precedent for other small countries like NZ, but too big for Amazon to ignore. Amazon would look truly evil if it wouldn't collect NZ GST once it has infrastructure to collect Australian GST.

Three cheers for the Aussies!