The federal government will have no means of forcing companies to apply GST to overseas online sales under legislation to be introduced in Parliament’s next sitting fortnight in October.
In what could end up being his last press conference as treasurer, Joe Hockey announced the legislation to collect GST on online sales would be introduced in the next sitting period.
Currently, GST is only applied to goods bought overseas worth $1000 or more. This threshold was set well before the advent of online retailers. Australians spent $15.7 billion online between January and August in 2014 through both domestic and international retailers.
Harvey Norman co-founder Gerry Harvey has led the retailer campaign against two successive governments to get the tax placed on online purchases in a bid to drive consumers back to his stores.
The previous Labor government tasked the Productivity Commission in 2011 to look at how the threshold could be reduced to catch the majority of overseas online sales. The model examined by the commission would have required Customs to examine every single parcel coming into Australia and apply the GST to those items over $20. It would not be economical, the commission found, as Customs would have to process more than 30 million parcels a year (by way of comparison about 20,000 parcels were processed in 2009-10).
“Lowering the threshold to $20 would raise in excess of $550 million in tax revenues, but the cost of the processing using the current system would escalate to over $2 billion — more than three times the additional revenue collected,” the Productivity Commission found.
In January Assistant Treasurer Josh Frydenberg said we should follow the UK and Canada in lowering our threshold and collect additional processing and handling fees to balance out the cost of processing all the parcels. He suggested at the time that the cost for processing was coming down.
“Importantly, the cost of enforcing a lower threshold is coming down as payment processes adapt to increased online demand,” he said.
It was unclear exactly what new technology was bringing down processing costs, but the government has abandoned plans to process parcels when they arrive in Australia to apply the GST. The legislation to be introduced in October — potentially by treasurer-in-waiting Scott Morrison — will instead try to get the overseas online retailers to apply the tax themselves at the point of sale.
The difficulty in this approach, however, is that the government cannot force online retailers and others offering digital services to Australians that have no physical presence in Australia — like Netflix — to collect the GST.
Hockey confirmed this to be the case on Wednesday, but he said a number of other countries had introduced similar legislation..
“There are companies like Amazon and Facebook and others that are prepared to work with countries, wherever they may be located, to apply consumption taxes should that country request it. That’s because they actually don’t pay the tax themselves, it’s their customers that pay the tax,” he said.
“So I am absolutely confident … those sort of companies will work with the Tax Office to apply GST to their sales in Australia, because they’re doing it in other countries around the world. And that’s because they want to be good, global corporate citizens.”
Taxation Commissioner Chris Jordan said it would be voluntary, with larger suppliers keen to be seen to be complying with local laws.
“Now there’s — and that is the vast bulk of sales in terms of percentages — there’s a multitude of small suppliers. Let’s wait and see how that turns out. Wait and see the size of that and work out if there are some other measures that might be feasibly introduced to pick up on more of those,” he said.
Crikey understands that a number of retailers, and other companies like Netflix, have agreed to put the GST on their products. It is not yet clear whether the companies will absorb this cost or just add it on to the price for goods. Amazon already applies value-added taxes outside of the US in places like Europe and the United Kingdom.
But there could still potentially be workarounds to any system put in place. For example, customers could simply switch to a smaller online retailer. Another way around it could be for the items to be sent via a third party. Some companies in the US already offer a service that will collect Amazon purchases not available outside the US and ship them to the rest of the world. The latter would only be an economical means of avoiding the GST if the cost for the service was less than 10% of the purchase price.
Hockey has previously indicated the GST would begin to be applied for overseas online purchases by the companies that agree to collect the tax from July 1, 2017.
Re-shippers get a substantial discount (effectively a commission) from Amazon so can re-ship at little cost to the purchaser.
Let me get this straight, I earn money in Australia and I will have to pay the GST to the Australian government. But Amazon earn money in Australia and pay taxes in Singapore and the Australian government gets bugger all.
What would stop an Internet retailer without a physical presence in Australia from charging the GST on purchases by Australians and NOT remitting the tax to Australia. In effect, a windfall profit.
A better way would be just to get the Australian banks to charge GST on foreign currency transactions on credit cards, in the same way that they charge a fee for foreign currency transactions.
There’d have to be a way, though, of getting refunds of GST on exempt transactions. Such as purchases during overseas travel.
I agree that all purchases should be subject to tax, but as the Productivity Commission pointed out,mths cost is greater than the revenue. Therefore a different form of tax is required as Wayne Robinson suggests. The model is a Tobin tax which is a tiny tax on all financial transactions but yields a high revenue.
The second point is that Gerry Harvey and his ilk are dreaming if they think a tax on overseas purchases is going to drive people back into his store. I regularly buy online and even with the tax the costs would still be significantly lower than the rip off prices we are forced to pay locally.
It doesn’t have to be so hard.
In Canada it’s Canada Post that collects the revenue at the point of delivery. The postman/woman turns up with a mobile EFTPOS (or rather Interac as it is there) machine and you swipe your credit/Interac card and pay the relevant taxes that way.
You can pay cash and they’ll give you a receipt, but they don’t give change.
If for any reason you can’t pay the taxes when you receive the parcel, Canada Post keep it at your local post office and you can pay when you collect it (the same as if you weren’t home when the parcel arrived).
In each case you need to produce proof of the purchase price by a printed or electronic invoice (i.e. an email on your phone). If you can’t produce this they won’t give you the parcel.
This whole idea of Customs needing to inspect every single shipment is asinine.