Following the conclusion of the COAG leaders’ meeting yesterday, it is now only a matter of time until the threshold by which the GST is applied to overseas purchases is lowered from $1,000.
Here’s what Assistant Treasurer, Josh Frydenberg, said about the issue on ABC Radio this morning:
JOSH FRYDENBERG: Look, I think this is a very significant and it’s good news for Australian jobs particularly in the retail sector where more than one million Australians are employed, more than 10 per cent of our workforce.
We’ve seen an exponential rise in the amount of goods purchased online particularly from overseas but it’s an anomaly with our current tax system where if you go down the high street in your local city you can buy a product under $1,000 and pay the GST but if you buy the same product online from Hong Kong for example and its under $1,000, you don’t pay the GST.
PETER RYAN: You might see this as a victory but online shoppers who currently dodged the GST for purchases under $1,000 really are going to hate this.
JOSH FRYDENBERG: Well, look there’s been a broad coalition of support for this initiative from retailers and business groups but also from unions who understand how important this is to local jobs as well as from state leaders both Labor and Liberal and when you look around the world, Australia with a $1,000 threshold has really been an outlier.
In the United Kingdom they apply the GST to goods and services bought overseas online from 15 pounds. In Canada the threshold is 20 Canadian dollars. In the United States they apply their GST or VAT equivalent to all goods bought online from overseas.
So, at $1,000, the Australian threshold has really been out of sync with the rest of the world.
PETER RYAN: So if the threshold is going to move below $1,000 what’s the new lower one going to be?
JOSH FRYDENBERG: Look, that’s to be worked out between Joe Hockey and the state and territory treasurers but clearly this agreement and this announcement yesterday is very significant.
PETER RYAN: Do you have a figure in mind though – $20, $30, $40, $50?
JOSH FRYDENBERG: Look, those numbers have been banding around particularly the $20 mark but that’s to be worked out between the treasurers in coming weeks.
PETER RYAN: This is going to be a difficult process once it gets underway. How many additional people are going to be employed to ensure that this additional tax is collected?
JOSH FRYDENBERG: Look, I think the compliance costs will be relatively low because we’ve seen real improvements in technology and if other countries, Peter, can do it then there is no reason why Australia can’t.
PETER RYAN: But there has been a strong argument though that the compliance costs and the costs of collecting GST under this lower threshold would outweigh the benefit. Is that still the case?
JOSH FRYDENBERG: No, it’s not and that report from the Productivity Commission dates back to 2011, and they also made the conclusion in that report that there was a strong principle for actually applying the GST to these online purchases.
And I think technology has really moved forward since those times which has substantially reduced the compliance costs.
PETER RYAN: You say this is mainly about protecting Australian jobs but it’s also about revenue raising and that revenue is going to be coming in pretty handy.
JOSH FRYDENBERG: Look, you’re talking hundreds of millions of dollars which will increase over time because people are clearly buying more and more online, and I don’t think when the GST was first implemented people predicted this major explosion in online purchases from overseas.
And when you look at where the rest of the world is, Australia needs to play catch up.
So, based on the above, it looks like the threshold in which the GST is applied to overseas goods will be reduced to around $50, possibly lower.
On Wednesday, I gave in-principle support to the online GST reforms on competitive neutrality grounds, noting that applying GST to local sellers only places them at a competitive disadvantage against offshore sellers.
That said, my in-principle support was based on the reforms being cost effective, and not unduly penalising consumers.
A key concern is that Australia might adopt the UK approach whereby the Royal Mail charges a collection cost on parcels from overseas. In addition to raising costs for UK consumers, this approach also significantly delays the delivery of offshore internet purchases, sometimes by a month.
It, therefore, is absolutely vital that the online GST reforms do not follow the UK route. To do so would not lead to competitive neutrality, but rather unduly shift the competitive landscape towards local retailers at the expense of Australian consumers.
