Treasurer Wayne Swan has released an interim report from the panel reviewing goods and services tax (GST) distribution, with one of the items on the agenda being the $1,000 tax-free threshold for goods bought overseas via the internet.
Currently, items that are shipped into the country are exempt from GST if they are worth less than $1,000.
The primary function of the review is to look over how the GST is carved up and fed to the states and territories, but they are also examining ways to increase revenue (such as imposing a tax on goods bought online from overseas retailers).
Last year, the much-hyped report from the Productivity Commission concluded that trying to enforce such a tax would cost more than it would gain. The report claimed it would cost over $1 billion to recoup $500 million in taxes.
Following on from that, the GST review panel commissioned a further report, looking at the available options if they were to go ahead and apply a tax to imported goods and services with a value of less than $1,000.
That report has been put together by independent taxation consultant Michael B. Evans. Evans is a senior fellow in the Faculty of Law at the University of Melbourne and contributed to think-tanks on the New Zealand GST in 1985, former Liberal leader John Hewson’s GST proposal in 1992, and former Prime Minister John Howard’s introduction of GST in 1999.
In his report, Evans recommends using a system that targets international suppliers by having them register for GST in order to supply goods to Australia.
If they are shipping to someone that is not registered for GST (such as an individual), then they would have to pay and report the tax for that item.
Evans uses the example of Amazon, the world’s largest online retailer, that he believes would willingly comply with the new system.
“This was the question that was asked when I did the first draft,” he recalls. “For instance, why would they do it here when they don’t do it in the US? The difference in the US is that trying to levy tax on a business in a different state is illegal under the constitution, so the states don’t have jurisdiction.
“If you were buying a product from Amazon right now, and it was over $1,000 in value, they would already account for the GST on the importation,” he explains.
This would make it simple for Amazon to apply the same system for lower-priced goods, as they are already doing it for higher-priced ones.
“It’s not like Amazon are avoiding the tax, there is simply no tax in Australia for less than $1,000 [on overseas goods]. There are in other countries, and where they are Amazon [pays it].”
Under the Evans system, the target would be major overseas retailers, as the logistics of going after smaller operations is not cost-efficient.
“You can get 90% of the revenue from this because it’s coming from 10% of taxpayers,” he says. “You get the really big offshore online dealers, and from a revenue perspective you should sit back and smile.”
Where a company like Amazon would not have to process the tax is if they are shipping to a business that is registered for GST. In that case, the business receiving the item would need to pay the 10% and record the purchase on its Business Activity Statement (BAS), but only if the item was for business and personal use (rather than just for either business or just personal use).
Evans points out that this is already in place, but is an overlooked part of our current taxation system.
“Under the existing rules, if you’re a business owner, and you download a program from the internet that is for your business, then you don’t have to do anything,” he continues.
“If you paid $5 GST on it, then you would get a $5 credit, so under the existing rules, it’s a wash. If the money you would have to pay is offset by the money you would have to claim, then you don’t have to do it.”
When he was asked to put together the report, Evans first established the aim of the tax as if it was introduced.
“The whole base is not about taxing business – it’s on the household – but because of the way a value-added tax works, we collect from merchants,” he adds.
Evans also investigated the idea of policing GST at a transaction level, by putting in place legislation that would force credit or debit card issuers (like Mastercard and Visa) to pay and report the GST on overseas transactions, which would no doubt be passed along to the consumer.
Visa told the Productivity Commission last year that it simply did not have the means to police transactions this way, and pointed out that it does not do anything of the sort anywhere in the world.
Evans explored overcoming this by forcing card issuers to deduct the cost of GST on all overseas transactions. If the item is something that genuinely should not have tax paid on it, then the individual or business can claim a tax rebate.
In his report, Evans points out that this would be incredibly complicated to set up, as you have to factor in the relationship card issuers as Mastercard and Visa have with the actual banks.
“I do not recommend these approaches because of the likely complexity and administrative costs involved,” he said.
The GST review panel made up of former premiers Nick Greiner and John Brumby, along with businessman Bruce Carter, referred directly to the Evans plan in its findings.
“There are a number of options to be considered to address this situation (such as a self-assessment model, requiring major offshore suppliers to pay GST, or collecting GST through overseas jurisdictions or card issuers), but none are straightforward to implement,” read the panel’s report.
The document went on to say that, in accordance with the Productivity Commission’s findings last year, the government set up a task force, spearheaded by Customs, to look at the efficiency of processing arrangements at the border.
According to Evans, the panel has passed along his report to the Customs investigation (known as the Low-Value Parcel Processing Taskforce), which has already released an interim report with very little new information.
From here, the GST panel will liaise with the Customs investigation, with both groups set to present final recommendations to the government in July.