OTA TAX – Cracks Appearing?
Just over two years ago the Supreme Court of Hawaii ordered that online travel agencies including Expedia, Priceline, Orbitz and Travelocity needed to pay the same taxes that everyone else who was trading pays.
Two years later and they have actually begun paying an amount which is now over US$50 million. That may not even be the floodgates open.
$50 million is not a great deal of money to these companies. But it will scare them. It could well be the beginning of something which begins to level the playing field for travel agents and hotels worldwide.
Why does this matter?
Typically, the way the law works is that it is exceptionally hard to get something through the legal process the first time. However, once a precedent is created lawyers can start saying things like “in reference to the case of the state of Hawaii versus Expedia…”. Now the final ruling has been passed this can quickly begin to gain momentum elsewhere.
Whilst our legal system is not linked to that in Hawaii, it certainly makes the dialogue easier when someone says “Well they got this through over there..”. Australian people like Australian politicians getting money of the big multinationals. Not many of them pay.
Relevance to Australia
The Australian government is ensuring that GST is charged on smaller and smaller transaction amounts for online sales. It’s hard to police but it is beginning. High-street shops are celebrating this as many of the online sites are bypassing GST. Therefore, online transactions are often 10% cheaper and for personal purchases, there is no mechanism to reclaim the GST when you purchase in a shop. Unfair advantage
GST is important revenue for maintaining our states and countries.
Travel agents should pay GST when booking accommodation for any Australian staying at an Australian property. Travellers bypass this by shopping around international sites who are selling Australian properties.. You can guarantee now that with this case going through, and the Australian government tightening GST laws, the online travel agency prices will go up.
Like other local companies who have been charging fees for answering the phone to modify booking, when they do away with this revenue stream the need to make it up somewhere else. Prices go up
They will need to charge this tax and start reconciling locally which is going to create significantly greater transparency on their trading patterns. That is good for travel agents.
Definitely good for agents
Agents are the high-street shops in this analogy. OTA’s regularly gain competitive advantage through loss leading or zero profit transactions . It’s another part of the travel agent arsenal to say “sure, you can book through these massive multinational online companies but they are ripping off your country.” This message is getting stronger as the cost of living in this country go up.
It may take longer than the first victorious court case, but with online travel agencies severely squeezing hotels, the pressure is going to come from both sides.