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  • Blog, Gadgets - Written by on Friday, March 22, 2013 11:29 - 22 Comments

    Apple’s Australian tax is mainly on iTunes

    blog As you may have noticed, throughout today Apple, Adobe and Microsoft will be fronting up to the Federal Parliament’s IT price hike inquiry. We’ll have more on that later, but for now suffice it to say that Apple, the first cab off the rank, has already started defending its local price differences as largely being due to GST and copyright fees. The interesting thing is that, according to an extensive analysis of the company’s Australian markups published by Macstories today, this may be relatively accurate. The chart-heavy analysis concludes:

    “In the past, Australians have complained about the prices of Apple hardware compared to US prices, but that is no longer much of an issue. On the whole, Apple hardware in Australia has a fairly low markup that in my opinion is now acceptable – though the iPhone 5 is an exception to this, and should be lower. The real issue here is the markup on media – and specifically, iTunes. Music prices are just untenable where they are now, whilst movies and TV shows could also use significant reduction in the Australian markup.”

    This analysis reflects what we’ve been reporting on more sporadically in terms of Apple’s Australian prices. Over the past several years the company has undertaken several initiatives to homogenise its Australian pricing with its US pricing, especially on products it 100 percent controls itself, such as its hardware and software solutions. It’s broadly only now in areas such as iTunes, where it acts as a marketplace and can’t set all of its own prices, that Apple is overcharging Australians. Of course, the same can’t be said for Adobe and Microsoft; it’ll be interesting to see what they tell the inquiry about their prices.

    Image credit: Apple

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    22 Comments

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    1. TrevorX
      Posted 22/03/2013 at 12:24 pm | Permalink |

      As I said months ago, the Apple price homogenisation that occurred last year is actually a huge string in the bow for the price hike enquiry – if Apple can bring its hardware and soft prices broadly into line between Australia and the US, then why can’t other vendors and manufacturers given that they’re all broadly using the same channels for importation and distribution (although Apple do retain their own retail channel also, other major software vendors also provide direct digital downloads which is even more profitable).

      Further, if it’s an issue of licensing for media content, then that’s a further blow to the greed of local companies who are simply taking a cut of local revenues without actually adding anything of value.

      • Stephen
        Posted 22/03/2013 at 2:48 pm | Permalink |

        “Further, if it’s an issue of licensing for media content, then that’s a further blow to the greed of local companies who are simply taking a cut of local revenues without actually adding anything of value.”

        Especially as the ‘local companies’ are simply wholly owned arms of the multinational record/publishing companies. None of them is an Australian owned company and none of the profits remain here and they’re at the forefronts of tax minimisation here.

        Don’t let Apple entirely off the hook though – their illegal collusion (please see the US DoJs action against them with several publishers admitting guilt and fingering Apple as the ring-leader) with the big book publishers has left us with massively increased ebook prices.

        • Dan
          Posted 22/03/2013 at 3:07 pm | Permalink |

          You make a damn good point there…

          The local arms of the MAFIAA are the one that are really giving Aussies the nose. Let’s hope they get hauled in front of the inquiry at some stage too.

    2. PeterA
      Posted 22/03/2013 at 12:35 pm | Permalink |

      Except wait; the iPhone 5 is marked up..

      Isnt the iPhone like a HUGE proportion of Apples sales? therefore a huge proportion of its sales are inflated??

      • Jo
        Posted 22/03/2013 at 2:56 pm | Permalink |

        Yeap

        And there’s huge scope for the price to be reduced. Everyone wants high-end smartphones sales because the prices are at least 3x the cost of parts (though after that you have to pay for patent and other licensing yet still it a similar difference). For Apple, it is and has always been even greater than that value at around 4x greater or more than cost.

        On the otherhand, the iPad and mini are definitely priced better (The RRP is at most 2x cost of parts though the margins increase with greater storage as they always do).

        Whilst I’m unlikely to buy any Apple products in the next year or so, I’m glad they’ve reduced their prices.

        • AndyP
          Posted 25/03/2013 at 5:29 pm | Permalink |

          It’s not relevant to talk about the cost structure of the product visavi it’s component costs vs retail price. They can do what-ever the hell they want and suffer the consequences in the market place. What is being discussed is whether they are unfairly gouging Aussies specifically.

          This specifically relates to how the price for the same hardware differers based on region alone… Google up the video of the Adobe CEO trying not to answer a journalists questions on the pricing of the creative sweet for a laugh. Hilarious.

      • Dan
        Posted 22/03/2013 at 3:04 pm | Permalink |

        I wouldn’t think it is that much of a difference in the revenue-to-Apple stakes.

        If the iPhone sells at a rate of about a million a year (I’m guessing) and they are more or less $200 different on average, meaning that the difference (US -> AU) could only be about $200m per annum at the absolute most (out of $6bn), however I doubt that is the case. The prices most people see in the USA are the locked-to-carrier phones that are heavily subsidised by the phone companies in the USA. I imagine that the carrier pays Apple for a good % of the cost of the device.

        The sad fact is that AU is (or at least was) one of the few countries in the world that sells totally ‘unlocked’ iPhones hence why they are often selling for MORE on eBay than on the official Apple store.

        • PeterA
          Posted 22/03/2013 at 3:15 pm | Permalink |

          16gb iPhone 5:
          649 (presumably ex tax) USD unlocked direct from apple. reference (you have to choose unlocked when it asks which carrier to get the unlocked price)
          800 (presumably inc tax) AUD unlocked direct from apple. reference

          I don’t think it costs 90 dollars per unit to ship an iPhone from China in bulk.

          • Dan
            Posted 23/03/2013 at 11:00 am | Permalink |

            Have You ever had to import anything from china? Customs, duty and handling charges in Australia are extortionate, but probably not $80 a unit on a box the size of an iPhone.

    3. Posted 22/03/2013 at 3:28 pm | Permalink |

      The AU iPhone 5 is AUD$799 including $73 tax and is an A1429 GSM.
      The US iPhone 5 is USD$649 plus $55.98 CA sales tax and is an A1428 GSM.

      All numbers on the US Store site don’t include tax. If you want to check out the tax yourself, punch in 95110 (San Jose ZIP code) and you’ll see the tax appear. So if we take the GST off, we get to $649 vs $726 which is roughly a 12% markup. Remember that the AU phone is not the US phone as well so has a slightly different part build. Also recall that in the US the tax is state based, so if you are out of state you don’t get taxed while those in the same state (e.g. me because I live in California) has to pay the tax.

      I doubt Choice has factored that into their campaigns that when you go to the US, you’re not necessarily paying tax.

      For the relatively smaller volume that the Australian market brings, 12% is probably not an unreasonable amount but it is certainly a mark up. That’s also assuming roughly parity and I’m sure Apple are priced in such a way that if the dollar goes down significantly (only needs to get to 90 cents to be close to the US prices) that they don’t lose their margin.

      Sources:
      http://www.apple.com/iphone/LTE/
      http://store.apple.com/us/buy/home/shop_iphone/family/iphone5
      (Click a colour, then scroll down to “Or get iPhone unlocked and contract-free” and it notes “The unlocked iPhone 5 is model A1428″).

      • Stephen
        Posted 22/03/2013 at 5:36 pm | Permalink |

        Except you chose California which has the *highest* sales tax in the US – any reason Sam?
        Most other states have a rate closer to 4% and some 0. None matches or exceeds California so you’re being dishonest.
        Also Apple have always immediately increased prices when the A$ dipped previously but never reduced them when it increased until scrutiny was applied.
        And 4% above is not parity – if I take 4% of your money for no explained reason you’ll damn well notice it!

        • Posted 23/03/2013 at 8:46 am | Permalink |

          If you care to take the time to read my comment you will note that I state that I live in California. I picked California because I live here and that’s what Apple defaulted to for me. California does have high tax but it’s actually comparable to the Australian GST in terms of percentage.

          Additionally, if you look closer at the comment I state that the 12% markup is on the AUD without tax and the USD without tax. Apple can’t choose what tax a state or country puts on their product. So I’m actually comparing AUD without tax to the USD without tax, the US state I picked tax from is for the most part irrelevant because I’m actually comparing the without tax values. Tax in the US is a much more complicated issue to figure out, but that discussion is for another reply.

          If you go to NAB.com.au and utilise their ForEx calculator you will notice that AUD$100 gets you an indicative transfer of USD$100.38. Just because the man on the TV saids AUD$1 buys USD$1.04 does it mean that this it the rate one will get. You only have to go back two weeks to get to below $1.02. Now Apple likely get a better rate than that for their transfers and for tax purposes a lot of the profits probably remain in the country but if the dollar can move a cent a week, you’re looking at being able to hit that in four months time. Apple is likely hedging their bets against the dollar weakening in the year long period that they will offer the product (excluding factors such that it’s likely more expensive to transport the lower quantity of product to AU than it is to the US). This allows them to keep a consistent price regardless of what the AUD is doing at the time which can work for them when it strengthens and against them when it weakens.

          And I can assure you as an Australian living and working in the US who also reasonably regularly sends money home, I do notice the 4%. In the last year I’ve seen that the dollar went down to almost 0.96 up to the 1.04 it is now and almost up to 1.08 nearly a year ago. And I’m sure Apple noticed the AUD going from 1.08 to 0.96 in (0.12 difference) in three months last year too. I know I did.

          Source:
          AUDUSD 01/03/2012 to 31/03/2013:
          http://www.tradingeconomics.com/charts/australia-currency.png?s=audusd&d1=20120301&d2=20130331&type=line

        • Dan
          Posted 23/03/2013 at 11:03 am | Permalink |

          California in *not* the highest taxing state!
          State taxes range from 4% to about 12%. California is 7.5%, and up to 10% if you live in a city with a higher taxation surcharge.

          • Stephen
            Posted 23/03/2013 at 3:18 pm | Permalink |

            Dan, it has the highest sales tax at 7.5%. The 12% headline figure you’re quoting is the total taxes collected by other states and includes property taxes.
            For the purposes of comparing electronic goods California is the highest taxing state.

            Also comparing a banks consumer exchange rate is completely disingenuous and not related in any way to Apples pricing structure Sam. Why are you trying so hard to prove black is white?

            • Posted 23/03/2013 at 4:28 pm | Permalink |

              I think you will find I repeatedly admit there is a 12% markup, I don’t understand why you don’t understand that there is a difference between the “buy” rate that is on the TV and what one realistically will get from a bank and I think you feel that Apple should change its pricing once a week to reflect changes against the USD without knowing precisely how much it costs to actually release the same profit and sitting from your arm chair. Given both Adobe and Microsoft had significantly higher mark ups on essentially digital goods while Apple’s hardware appears to be the one in the sights with 12% mark up. If you have the delusion that Apple is actually getting 1.04 (or the 1.02 a fortnight ago) and think the 12 cent variation in the dollar over 3 months doesn’t figure in Apple’s pricing then I wonder how blinded to running a multinational business you must be.

              Perhaps you can share with us the actual rates you feel that Apple would be getting right now or perhaps your argument is based on pure conjecture.

              • Paul
                Posted 25/03/2013 at 2:46 pm | Permalink |

                Sam, you are correct in what you are saying. In a past life I worked for a distributor of electronic equipment and I must say that I think Apple are quite reasonable in the way they price their goods – especially in comparison to everyone else. We have seen our currency value against the US change a huge amount over a relatively short period of time, so while the exchange rate is good today, things will likely change tomorrow. And we can’t expect to pay the average of the exchange rate for retail goods either as a standard price point needs to be maintained for shelved goods. Not only that but goods shipped to Australia incur a lot more than just shipping costs. Remember that the iPhone 5 has had a huge advertising spend in Australia, not only on media, but in giveaways etc. all of which add up to extra costs for the consumer.

                And please don’t think that I am in any way an apple “fanboi” or even defending the ridiculous markups that you get on some goods (software especially). For the record I don’t actually own any apple products (although I once had an ipod). I would certainly recommend buying your products from overseas or direct from the manufacturer if you can manage a better deal but I also think people should not just assume everyone is out to rip them off… I have no doubt that plenty of companies are but in the case of Apple and the iPhone 5 I think the markup is absolutely reasonable.

              • Posted 23/06/2013 at 5:52 am | Permalink |

                And three months later the AUD is hovering around 0.92 – down 12 cents in three months from when this was first posted. Apple’s Australian Tax has diminished to nothing and if I use the NAB’s currency conversion tool, Apple’s Australian Tax is now an Australian Bonus! Yes, expect all of these American’s to fly over to Australia to pick up cheap iPhones! And it’s also tax free for them as well so even more savings!

                Convert Australian dollars to foreign currency – Results

                Calculate currency
                1 AUD = 0.8842 UNITED STATES DOLLAR
                726 AUD = 641.93 UNITED STATES DOLLAR
                Indicative Rate as at: 21-JUN-2013

    4. BrownieBoy
      Posted 22/03/2013 at 6:14 pm | Permalink |

      I’d say that Apple’s come out of this quite well, all in all.

      Certainly, compared to the stonewalling and evasions offered up by Microsoft and Adobe today. About which, errmm…clocked off early today, Renai?

      • TrevorX
        Posted 23/03/2013 at 12:27 pm | Permalink |

        I expect he’ll be writing up a summary article for Monday ;-)

    5. Kevin Cobley
      Posted 23/03/2013 at 12:36 pm | Permalink |

      It’s about time the government legislated to end sales of products by companies that practice country discriminatory pricing.

    6. Stephen H
      Posted 25/03/2013 at 3:50 pm | Permalink |

      “It’s broadly only now in areas such as iTunes, where it acts as a marketplace and can’t set all of its own prices, that Apple is overcharging Australians”.

      Sorry, but that excuse doesn’t wash. Apple has enough market power to set standard pricing on most singles and albums in iTunes, but doesn’t have enough market power to standardise prices across markets? Bullshit.

      • AndyP
        Posted 25/03/2013 at 5:40 pm | Permalink |

        StephenH, Apple charges a flat %30. Which is according to Apple, the break even price to cover the infrastructure. They can’t set the prices for singles or albums they don’t own the rights to…

        Are you saying Apple should charge less than the rights holders demand and make a loss?

        Compare Apples pricing on the GarageBand app for an example. It owns the rights and sets the price. It’s almost identical to US pricing.




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