It’s official. The GST will be applied to all goods purchased from overseas from 1 July 2017, after Australia’s treasurers reached unanimous agreement on Friday. The new regime will replace the $1,000 threshold currently in place, which has long been accused of harming Australian retailers and bleeding the Budget of tax revenue.
In announcing the decision, Federal Treasurer, Joe Hockey, argued that the reform was a tax integrity measure and seemed confident that logistical issues could be overcome, thus making the regime workable. From ABC Radio:
“Competitive neutrality for Australian businesses will ensure that there is a fair and equal treatment of all goods and services so that if goods and services in Australia were to have the GST applied by companies in Australia then the same would apply overseas.
…what it effectively means is that we’re going to have to have taxation officials travel around the world and visiting these companies and asking them to register for GST purposes should they be selling into the Australian market…
…one of the impediments to delivering on this integrity measure in the past has been the enforceability of it and that’s because previously there were proposals that each parcel that comes into the country should be inspected and determined whether that was less than a certain value.
Quite frankly that was ridiculous and it was one of the reasons why ourselves and other jurisdictions resisted going down the path of fixing the low value threshold. However, as a result of our work in G20 and in OECD, there is now a growing global consensus where the vendors of goods and services overseas will willingly apply consumption taxes to their goods and services sold into a particular jurisdiction”.
Unsurprisingly, Australian retailers have hailed the reform, calling it a victory for fairness and equity.
I have previously given in-principle support to abolishing the GST threshold on overseas purchased goods based on competitive neutrality grounds, noting that applying GST to local sellers only places them at a competitive disadvantage against offshore sellers. However, my in-principle support was qualified on the reforms being cost effective, and not unduly penalising consumers.
Thankfully, the approach being pursued meets this criteria, with the Government only attempting to recover GST at the point-of-sale from overseas sellers, rather than at the border from the customer.
Importantly, Australia looks set to shun the UK approach, whereby the Royal Mail charges a collection fee 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.
Obviously, some potential for tax leakages will remain, since it is likely that only bigger online retailers, such as Amazon, may agree to collect tax, whereas many smaller ones, such those selling on Ebay, could slip through the net (and may fall under the A$75,000 turnover threshold for collecting GST).
But, overall, the approach chosen by the Government appears to achieve the right balance of closing a known tax leakage without placing Australian consumers at a significant disadvantage.
