Reports have emerged that Australia’s state and territories will next week reach agreement with the federal government to lower the low value threshold (LVT) on the GST, possibly to as low as $20. From Smart Company:
It is expected state and territory ministers will reach a decision next week in regards to the push from bricks-and-mortar retailers to see the GST threshold for online goods lowered from $1000 to $20…
[Federal Small Business Minister] Billson says the federal government is in conversation with the states and territories.
“We will continue to work with the states and territories should they all wish to address this anomaly,” he says…
Billson says the government believes in “tax neutrality and tax efficiency”.
“Our initial investigations have revealed there would need to be a change to the collection system and this is what the business case is about,” he says.
As noted previously, arguments for lowering the GST-free threshold (or eliminating it altogether) are flawless on competitive neutrality grounds. After all, why should foreign sellers receive an unfair advantage over local retailers?
That said, concerns remain over whether the costs of administering and enforcing a lower threshold would outweigh the extra revenue raised, in addition to the gains from a more level playing field.
For example, in its December 2011 report on this issue, the Productivity Commission claimed that the Federal Government forwent $496 million of GST revenue in 2011 from the LVT, but that it could cost the community over $1.2 billion in administration and enforcement costs if the LVT was removed.
Moreover, the Commission argued that reducing the low income threshold could dramatically increase costs to consumers, with the effective tax rate on low valued goods coming in at around 64% under current processing arrangements:
Obviously, any reduction in the LVT should be accompanied by changes to the customs processing and collection system so as to ensure that undue costs are not levied on internationally purchased goods, in turn tilting the playing field too far in favour of local retailers and stifling legitimate price competition.
