Leveling the playing field with GST27/04/17
The Goods and Services Tax (GST) has been an integrated part of Australian capitalism since the year 2000, and while there has always been discussion about its application to foreign purchases, it is only now that the government has put its intentions forward, with a proposal to expand GST to imported goods purchased online. The legislation, if passed, would go into effect in the new tax year and would apply to online imports under $1000. The aim behind this is to help level the playing field for domestic retailers.
Currently, low-value imports, being those valued at $1,000 or less, are exempt from GST, which has allowed Australian buyers to get some products cheaper from overseas rather than domestically where the prices are inflated not only by high taxes but by a high cost of living.
The issues that arise out of this tax are similar to the issues related to the ATO collecting HECS repayments from overseas citizens, in that the enforcement of Australian laws overseas is both costly and difficult. The plan would aim at making foreign vendors register for GST if they sell more than $75,000 worth of goods to Australian consumers.
This tax would particularly impact companies such as Amazon, but the more interesting case comes about with regards to eBay, which is not a vendor itself but rather a platform where individual vendors sell their products. Even mail-forwarding services would be considered suppliers for GST purposes under this legislation, which raises further questions of whether customs will differentiate between a gift being sent from overseas, and an overseas purchase, or whether they would expect GST remittance on both.
Although the tax has the aim of making retail a fairer game for Australian vendors, there are stark differences from the tax in the way online marketplaces are treated for tax purposes, which has led some to believe the tax may impose GST on goods from overseas vendors that wouldn’t get taxed domestically, essentially becoming a light tariff.
Ultimately, such a tax would only be effective in its goal if it was able to treat both domestic and foreign vendors equally, and more so if it is able to actually be enforced. Voluntary compliance from overseas vendors is unlikely. The method of collection has been ambiguous in the legislation, and foreign sellers are unlikely to register for GST, even disregarding the fact that many countries don’t follow accounting regulations that are similar to Australian accounting standards – it is unreasonable to believe that they would incur the cost of compliance.
Some companies such as eBay have essentially stated that they may have to prevent Australian’s from buying from foreign suppliers due to the difficulty in third-party vendors complying with GST regulations. Others have raised concerns that the government may use the same powers they used to block popular file-sharing websites earlier this year to block access to the websites of non-compliant vendors.
While the legislation is expected to pass, there certainly needs to be some work done on how they will implement and enforce this tax overseas, and whether it will bring in enough revenue to make up for its costs is yet to be determined. Having the tax on foreign purchased goods could lead to many people looking for ways to skirt these taxes, or drive others to the domestic market. Given the high cost of goods in Australia generally even without GST, there is also the possibility that some goods will continue to be purchased from overseas. Rather than trying to make an even playing field, it would appear the government is more interested in disadvantaging overseas vendors in the hopes that it will boost domestic spending.