The Productivity Commission has accepted arguments from retailers that the GST-free threshold for imports should be below the current value of $1,000.

In a draft report released Thursday, however, the commission says the method of collecting the tax at Australia's borders has to be far more efficient to make the change cost-effective.

The recommendation will please retailers who have been lobbying hard for the threshold to be eliminated completely, but people who have been buying overseas goods cheaply thanks to the high dollar will lose out.

Earlier this year retail groups banded together under a Fair Imports Alliance flag, saying that online commerce accounts for almost 20 per cent of non-food retail sales.

While the Productivity Commission report says the GST exemption is only a "minor part" of the competition, it says the broad-based consumption tax should be reduced to a low level to "ensure tax neutrality".

But it emphasises the need for greater efficiency in collecting the tax.

"As the threshold is lowered, costs of collection increase significantly - at very low thresholds (for example $20), the costs of collection would exceed tax revenue by over 3:1," the report said.

"Such a cost impost on both importing businesses and consumers is unacceptable, even without considering additional costs such as delays."

The commission says processing systems have improved in other countries and need to improve here.

"The Government should investigate this with a view to then reducing the LVT [low value threshold] in a cost-effective way."

'Some hope'

Australian Retailers Association [NRA] executive director Gary Black says the report represents "some hope" in the retailers' "battle to get a level playing field".

"We strongly support the recommendation that the threshold should be reduced," Mr Black told ABC News Online.

He agreed that collection methods should be streamlined but "from there the commission loses its way".

"In the United Kingdom and Canada the threshold is $20. While the commission says it would cost three times the value of the tax to collect it, it does not take into account the damage done to the community because of the undermining of the retail sector," he said.

"If nothing is done 80,000 jobs will be lost in the next five years and the commission needs to factor in these costs and consequences."

Mr Black said consumers, while losing access to cheap imports, would acknowledge the "fundamental inequity" around the tax and regulation regime.

"Online purchases will not be as lucrative but the prospect of kids getting jobs in retail will be welcomed."

'Crazy'

Assistant Treasurer Bill Shorten says the commission's draft report found it would cost $1.6 billion to recover $500 million in tax.

"If we were to abolish the GST exemption tomorrow... the Australian taxpayer would be up for a bill of three times as much as the tax we're collecting - that's crazy," he said.

Mr Shorten said the government would examine ways to reduce the costs of collecting GST on imported items valued at less than $1,000.

"We will start discussions, but let us be very clear - that process could take several years," he said.

In the draft report, the commission also called on state and local governments to review trading hours restrictions and planning and zoning regulations.

The final report is due in November.