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The GST is coming to low value overseas purchases using the ‘legislated model’

November 15, 2017

The Australian Parliament in June this year legislated to apply the GST to low value imported goods (less than $1,000) from 1 July 2018.

At present consumers purchasing books, clothing, electronic devices, sporting equipment or other consumer goods from a domestic retailer will have to pay the 10% GST. However, the same goods purchased from overseas are exempt from GST if their value is less than $1000. Whilst great for consumers it has been regarded as grossly unfair by Australian and Queensland retailers.

Retailers have long argued that this GST exemption for low value imported goods creates an uneven playing field, harming the viability of their businesses. The exemption also meant State and Territory governments were foregoing significant amount of GST revenue ($400m).

The growth of online commerce has increased these concerns. For the year ending June 2017, the National Australia Bank estimated that online retail sales totalled $22.7 billion, of which about one fifth were from abroad.

The Productivity Commission was asked by the Coalition Government to examine the best available collection model to extend the Goods and Services Tax (GST) to low value imported goods and has just confirmed what is called the ‘legislated model’ as the best way forward.

What this will entail is that foreign vendors, as well as redeliverers and ‘electronic distribution platforms’ (EDPs), such as Amazon and eBay, will be liable for GST on low value imported goods sold to an Australian consumer however only those foreign suppliers that make sales of more than $75 000 to consumers in Australia each year would be required to register for and collect GST. Sales from foreign vendors below that threshold, but supplied through EDPs or redeliverers, will also be liable for GST.

Foreign suppliers would be expected to include a GST component in the price of their goods, as domestic businesses do, and periodically remit this to the Australian Tax Office (ATO).

Some stakeholders have criticised the model, contending that it relies on voluntary compliance, is unlikely to be effective, and that better collection models should replace it.

However the Productivity Commission concluded that the ‘legislated model’ is the most feasible among the imperfect alternatives at this time. The Commission concluded ‘the legislated model’:

  • should go someway to improving tax neutrality between imported and domestically retailed low value goods.
  • revenue obtained is likely to significantly outweigh the administrative and compliance costs.
  • should avoid major disruption for consumers when importing goods, although some electronic distribution platforms have warned they may disable foreign vendors from selling to consumers in Australia.

In summary Australian retailers will benefit from the more equal tax treatment of competing imports and before consumers groan too much about the change I would ask you to consider this …….

If we disadvantage our retailers through an uneven playing field in the short term and they close in the medium term, this undermines competition in the longer term that will mean we end up paying even more than the 10% GST on items valued under $1,000.  This is a fair and economically sensible change.

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