Fairfax’s Peter Martin is reporting today that an agreement to lower the threshold by which GST is applied on overseas purchases is imminent:
State treasurers will be asked to subject almost all imported parcels to goods and services tax under a dramatic proposal that would cut the GST-free threshold from $1000 to just $20…
The change is being pushed by federal Assistant Treasurer Josh Frydenberg, who wants to level the playing field between digital and physical sales after this year’s budget extended GST to all digitally delivered music, movies and software regardless of the price.
Without further change, electronically imported goods will be more heavily taxed than physically imported goods when the new rule comes into effect in July 2017.
The proposed $20 limit will be put to treasurers when they next meet with federal Treasurer Joe Hockey and Mr Frydenberg on August 21…
Canada has a threshold of $20, Britain has £15 and the United States has no threshold at all, subjecting all imported parcels to tax.
In principle, the case for lowering the GST-free threshold (or eliminating it altogether) is flawless on competitive neutrality grounds. After all, why should foreign sellers receive an unfair advantage over local retailers?
The concern has always been about whether the costs of enforcement would far outweigh any extra GST revenue raised, thus conferring net losses to society.
In December 2011, the Productivity Commission examined the issue and estimated that applying a $100 threshold while utilising the current processing system may “cost the community over $1.2bn to facilitate the collection of $496m in revenue”, suggesting a significantly lower GST threshold is a bad idea.
However, as reported by Peter Martin today, both Josh Frydenberg and Joe Hockey believe more recent technological advances have pushed down the cost of enforcing a much lower threshold, making it cost effective.
If this is the case, and the numbers add up, then the Government should indeed legislate to lower the GST threshold on overseas purchases.
