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November 14, 2024
Objective: Respond to all inquiries. Restrict the word count of your task to less than 3000. Kindly include diagrams in your response where applicable.
Preface: Online shopping has shown significant growth since the beginning of the decade and has emerged as a primary source of income in global marketplaces. This economics case study examines Frank Chung’s essay about Amazon’s reaction to Turnbull's online retail GST legislation. The new GST regulations are resulting in a detriment to Australian consumers. This economics case study aims to delineate the ramifications of taxes associated with online buying in the Australian domestic market, specifically targeting large multinational corporations. Tax theories, including Benefit theory, Cost of Service theory, and Ability to Pay theory, have been used to assess the responses of large multinational corporations like BP, ExxonMobil, and BUPA to online shopping taxes.
1. Synopsis of the provided article
The essay authored by Frank Chung discusses how the Turnbull government's tax on internet shopping in Australia adversely affected consumers in the nation. This economics case study has concentrated on methods to prevent exploitation on the globally renowned online buying platform, Amazon. Frank Chung has said that the prominent titan of internet retail marketing is going to compel all shoppers in Australia to use its local website.
This local website offers much smaller but more costly selections of products compared to the same worldwide site. The Amazon proprietors have said that the alteration was implemented in response to the government's new regulations on goods and services. This requires international commerce for the taxation of things valued below $1000 (amazon.com.au, 2018).
Prominent treasurer Scott Morrison has criticized Amazon's decision, claiming that several alternative online shopping platforms exist, and that Amazon is free to withdraw if it so desires. Amazon is one of the most renowned technologically savvy corporations globally. Numerous economists find it difficult to accept that the mere implementation of a sales tax on commodities renders Amazon incapable of discovering a technical solution.
Moreover, this economics case study reveals that certain items supplied by some third-party vendors on Amazon's Australian website seem to be much more costly. This indicates that purchasing from the U.S. has been more economical, even after accounting for transportation expenses.
According to the post, starting of July 1st, purchasing things on the Amazon international site has become somewhat more difficult and costly. Nevertheless, there is a favorable potential for such a transaction to be more advantageous than paying the inflated rates referenced on the Australian website. A potential method is requiring individuals to register for a virtual private network. They may thereafter change to a U.S. IP address. Numerous individuals are now using this method to deceive internet streaming services, such as Netflix, into believing they are from inside the U.S. to circumvent content restrictions. Consumers have several alternatives for services to choose from, including ExpressVPN, TunnelBear, Private Internet Access, and NordVPN (australia.gov.au, 2018).
Australian customers may log in or register for an account with ShopMate, Shipito, or Parcel. Here are few instances of freight forwarding services accessible. These services provide clients with a U.S. address to provide to the shop, following which they send the whole item to Australia for a certain charge.
2. Whether the Turnbull government's internet purchasing tax penalizes Australian consumers and restricts their choices compared to customers elsewhere.
It is essential to note that a fully competitive market is characterized by the maximum conceivable degree of market competition. The fundamental features of a completely competitive market are as follows:
In this context, the Australian Taxpayers Alliance said that the tax levied by the Turnbull government on internet buying had adversely affected Australian consumers. This has also deprived purchasers of the same array of options accessible to a vast number of customers globally. Therefore, the aforementioned assertion may be accepted. This may be elucidated via the benefits theory, cost of service theory, and capacity to pay theory of taxes.
Figure1: Impact of Tax
(Source: economicshelp.org. 2017)
Benefit theory posits that taxes should be levied in accordance with the spending on public goods. According to this principle, clients are required to pay based on the goods they get. If Australian consumers do not get the requisite product quality at a fair price, they may undoubtedly transition their preference from Amazon to other purchasing platforms.
The cost of service theory posits that the expenses spent by the government in providing public goods should serve as the foundation for taxes (Lee et al. 2016). The ability to pay hypothesis posits that taxes need to be levied based on the consumer's financial capacity. If individuals in Australia are unable to afford the price on Amazon due to the application of a company tax, they will undoubtedly be unable to make purchases from the platform.
3. The justification for establishing an online shopping platform and its impact on market efficiency.
Online purchasing was first conceived by Michel Aldrich in the United Kingdom. This is a specific kind of e-commerce that enables clients to acquire goods and services directly from the vendor over the internet. The whole online buying procedure is conducted only via a computer browser. The following are the justifications for establishing an online purchasing platform:
Accessibility: Online buying platforms are often accessible 24/7. Consequently, people may get their necessities at their convenience. This was a primary motivation for establishing an online purchasing platform to provide a risk-free buying experience (Waterlander et al. 2016).
Enhanced pricing: A significant justification for the establishment of online shopping platforms was to reduce the costs of goods and services, so enabling customers to acquire products at a more affordable price. In online buying, items often reach customers directly from the manufacturer or the vendor, without third-party participation.
The ability to compare costs is a primary advantage of online shopping platforms, enabling shoppers to evaluate the cost of identical products across many websites. Online purchasing allows customers to compare costs across many sites for the same brand, facilitating the selection of the most economical option (Anaf et al. 2017).
A diverse array of products: Consumers may access many brands and commodities from numerous vendors at a same location. The establishment of online shopping sites is significantly motivated by the need for customers to access companies whose physical shops are far from their residences (Shao, Li & Hu, 2014).
It is essential to recognize that the presence of precise information is crucial for the proper operation of a market. In realistic circumstances, accessible information is seldom flawless. Consequently, markets persist in their inefficiency. It has been noted that in the majority of countries, market rules strive to ensure information is equitable and uniform. Wu et al. (2014) assert that perfect knowledge is a fundamental assumption in numerous economic models, positing that all market players possess identical information simultaneously.
In a completely competitive market, it is believed that complete information about prices and commodity supply is consistently accessible. In such a market, a corporation is unable to affect market circumstances and product pricing. Given the availability of perfect knowledge in the market, a single business functions as a price taker, accepting the prevailing price determined by the total industry. It cannot raise its price, and no logical manufacturer can reduce any price below the established market price. This is the rationale for why a competitive market is more efficient than alternative market structures. Allocative efficiency is often seen in a completely competitive market.
4. Do you concur that taxation on internet buying enhances the efficiency of shops in Australia? What is the impact of taxation on internet shopping on the total surplus of the economy?
The proposed online GST legislation by the Turnbull Government may enhance the efficiency of Australian local shops by requiring foreign enterprises to pay taxes on items priced under one thousand dollars ($1000) (Ntanet.org, 2018). Implementing such a measure might negatively impact Australian customers, since the inclusion of GST entails an extra tax burden in addition to the product's price. The increased GST tax for online purchase may benefit multinational corporations engaged in commerce with Amazon; nevertheless, there are also adverse implications (Ntanet.org, 2018). The imposition of additional tax may result in increased expenses for customers purchasing a certain product, perhaps leading them to forgo buying that product from Amazon (Li 2018). This may occur because the buyer may discover that specific goods at a local merchant at a much cheaper price, along with the advantage of avoiding elevated GST taxes. Consequently, multinational corporations may forfeit some valuable customers owing to their additional tax policy. A client discovers that a certain brand of clothes is priced at 670 dollars on Amazon's Australia site, whereas the same item is offered for 350 dollars at a local retail shop (Ntanet.org, 2018). Consequently, Li (2018) contends that domestic merchants will be more lucrative and, thus, more effective in providing consumers. The rivalry in the retail business will be relatively minimal if people choose to transition from internet purchasing to retail shopping owing to increased taxes.
Figure 3: Producer surplus Graph
(Source: economicshelp.org. 2017)
Figure 4: Consumer surplus Graph
(Source: economicshelp.org. 2017)
The taxation of online purchasing may influence both production surplus and consumer surplus in several ways. The participation pattern of buyers and sellers in a certain commodities market illustrates how the implementation of taxes would influence the dynamics of consumer and producer surplus. On one side, the implementation of taxes may adversely impact the total surplus, since both consumer and producer surplus might decline. For instance, if a product is priced at 8 dollars with an additional tax of 1 dollar, a customer willing to spend 9 dollars for the same would now pay just 2 dollars (Ntanet.org, 2018). The provider, previously earning 6 dollars, will no longer receive any additional amount owing to the price rise. Swank (2016) contends that a deadweight loss may arise when elevated taxes compel producers to reallocate their resources towards the manufacture of items with lower tax burdens. If purchasers, such as multinational corporations (e.g., Amazon), exhibit sensitivity to price fluctuations, then a deadweight loss is adversely impacted. If suppliers are responsive to price increases, they may choose to withdraw from the market, resulting in a detriment to consumers. (australia.gov.au, 2018)
5. What would be the short-term and long-term repercussions if multinationals are not compelled to contribute their fair share of taxes, therefore gaining an advantage over retailers in Australia?
Dootson and Suzor (2015) assert that international corporations are likely to gain advantages if they are not obligated to pay taxes, since tax exemptions provide them with a competitive edge over domestic merchants. If MNCs in the Australian domestic market are granted tax exemptions, they will be able to price their goods without the additional weight of taxes affecting the overall cost. The imposition of tax on a product's price significantly influences its overall performance, impacting both purchasers and producers concurrently (Picard et al. 2016). Consequently, if multinational corporations such as Amazon refrain from imposing taxes, they will draw a larger customer base by offering their goods at reasonable prices, thereby challenging the local market. For instance, if a local retail establishment in Australia offers a product for 10 dollars inclusive of all taxes, a multinational corporation may offer the same goods for 8 dollars since it is exempt from taxation. Consequently, the immediate repercussions of this approach will be a substantial rise in earnings for the multinational corporation. Tyers (2015) said that domestic merchants risk losing their clients. Nonetheless, retail markets are expected to prosper in the long term as they endeavor to reduce prices to maintain competitiveness. If they can attract consumers by reducing their prices, they will maintain a competitive advantage against multinational corporations such as Amazon in the long term. The imposition of taxes on a product significantly affects the dynamics of retail marketplaces. Moreover, multinational corporations are impacted since taxes influence their entrance expenses.
This economics case study concludes that consumer surplus is the difference between the price consumers are willing to pay and the market price they actually pay. In this regard, it is important to highlight that total surplus is the aggregate of consumer surplus and producer surplus, which might assist Amazon in comprehending its market share. If the quantities of consumer and producer excess are known on Amazon, total surplus may be readily computed. Consequently, it may be inferred from this economics case study that if Amazon is unable to adapt to the existing taxing framework in Australia, it must explore other strategies for survival. They may also decrease their manufacturing costs in this regard.
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