Lowering The GST Threshold For Online Sales Would Cost Australians A Fortune

One of the main arguments against lowering the level at which GST is applied to online sales is that the cost of actually collecting that tax is likely to be higher than the amount of revenue collected from it. A new study by Choice confirms that, and suggests that the cost of some items might almost double.

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Choice has made a formal submission to the Federal Government on the issue. It has been widely predicted that a change to the current $1000 threshold at which GST is applied to goods purchased from overseas sites might be introduce in this year's budget.

Local retailers argue the threshold gives offshore sites an unfair advantage, since Australian sites have to charge GST to local customers regardless of price. As we've often pointed out, the price difference for many goods is so huge that even a 10 per cent markup and a processing fee wouldn't discourage buying from overseas.

Since it's effectively impossible to force all offshore sites to apply GST, the most likely model would be for this to be added as a "processing fee" which consumers would have to pay before the goods could be delivered. This model has been used in the UK, where a fee of around $14 is applied. "If a similar system was introduced in Australia, a $20 product bought from an overseas website could cost $36 and remit just $2 in tax revenue," Choice concluded.

If GST was applied to all online sales regardless of value, Choice calculates the total additional cost would be $823 million per annum. In order for the tax to be revenue-neutral — that is, to match the cost of collection — it should be applied to purchases of $140, its analysis found. But with 76.5 per cent of sales from offshore web sites are for goods valued at $100 or less, it's far from clear this would improve either tax revenues or the competitiveness of local stores. So it still seems like a dumb idea, but that doesn't mean it won't happen.


Comments

    You're missing the double play.
    Dinosaurs like Gerry Harvey use other dinosaurs like Rupert Murdoch to bribe and coerce politicians to prop up their businesses by extending the GST.
    Then, politicians raise the GST higher (say 12%) with the argument it costs more to collect now. So what if they only collect $2 on your overseas purchase - they just took an extra 2% on everything!!

    Ok, so it may be possible to order 'gifts' via a VPN service & then have them delivered to australia?

    I might be missing something completely, but it seems that there is a fairly limited number of methods to make an international transaction, i.e. credit cards, PayPal, OzForex, direct from bank. Why not enforce that these few large players automatically capture the GST amount for international transactions? Much easier to enforce, as all of them have an Australian office registered for tax. I'm sure other transfer methods and tax avoidance techniques will pop up, but surely taxing these few large players would capture the lions share of tax revenue for a lesser enforcement cost, i.e. greater net return for the commonwealth.

      Because some items are GST free, you can't apply GST to an entire transaction, only specific items within that transaction.

        Valid point. But there are not many items that would be bought internationally and would currently fall under the $1000 threshold that are GST exempt.

        From ATO site, 'GST-free' items include:
        most basic food
        some education courses, course materials and related excursions
        some medical, health and care services
        some medical aids
        some medicines
        some goods produced for export
        some childcare
        some religious services and charitable activities

        Buying text books internationally would probably be the most commonly encountered issue that I can think of. Maybe this could be claimed back as part of an individual's normal tax return? It is another level of complexity but it still seems easier than an additional processing step in transit. I've done quite a bit of importing and the duty processing step (items over $1k) can be a pain. It seems insanely inefficient for small value items.

          The program is horribly inefficient for lower-value items regardless, because the cost of processing is the same regardless of whether the item costs $2 or $2000.

          Setting a low threshold is also likely to be a problem long-term due to inflation. when that $140 threshold is only worth about $60 in todays dollars, the program will be costing substantially more to run than it does now.

          What about services? Services conducted outside of Australia are GST free. How would a payment provider know what component of a transaction is for services of for goods?

          Additionally, how would you prove that transactions you paid GST on contained GST free goods and services? How do you handle discrepancies between invoiced descriptions and items identified by the ATO? How do you handle disjointed payment and invoices? Partial payments? Combined payments (where the combined value is greater than $1000)?

          You would need to get every online retailer and every online payment provider to sign up to a system where you can track these purchases correctly.

      That's effectively what the Choice study is proposing.. However, they argue (and fairly) that the processing companies will add a processing fee (like a Booking Fee when you buy a ticket to an Event) to recoup the cost of the added processing required specifically for Australian purchases.

      But the processing Fee will cost more than the GST being collected (and of course will incur GST, being a "service")

    They should leave the threshold at $1000 as the costs to collect the GST would defeat the purpose of charging the tax.

    Yay! another law that is going to cost more to enforce than it will end up collecting. Why don't we just have the Government Subsidise all big box stores. At least then the money will go directly where it was intended.

    Last edited 06/02/14 10:42 am

    Ok, this is why we need to make the current Gov't a one term Gov't. Labour would not be so keen to do this, nor would it be as susceptible to outside forces like millionaire franchise owners...

    Last edited 06/02/14 10:42 am

      You have no idea what Labour would or would not do in this case (nobody does, not even Labour themselves). Your "current gov't a one term gov't" is driven purely by your want for the NBN.

        Jesus... I had no idea people could read my mind over the interweb thingy...
        I've been voting Labor since the early 70's mate, don't tell me what I think...!
        As for Labor not knowing, they are the party that invests in infrastructure and giving money back to the people. The Libs are only interested in scraping money back and lining the pockets of the wealthy..! I'd say your comment reflects more your opinions about Labor than mine...!

        Last edited 06/02/14 12:42 pm

      Are you an American? This mindless rubbish reeks of the typical "Obama SUCKZ!" comments that appear on basically every news story with comments enabled in the US, irrespective of subject.

        My comment was clearly a show of my contempt for the bullshit and lies this so called "infrastructure" Govt has lowered itself to, and in the first few months of winning the election...! As a staunch Labor supporter, I really don't think my comments were misplaced, yours on the other hand....

    Even if the Coalition were stupid enough to do this, I doubt very much if it would benefit the likes of Gerry Harvey that much. People would find ways of getting round it, such as the overseas sites from which you can buy products not available in Australia. And they would still refuse to pay the higher prices unless it was really urgent.

    Anyway, the mechanics of enforcement are complex. How will the government know that I have bought a product overseas and had it mailed or couriered to an Australian address? What are the steps - monitor my internet connection to intercept an encrypted credit card payment? Highly unlikely - it would raise massive privacy issues. Monitor my PayPal or other payment accounts? No, they are mostly overseas companies that wouldn't necessarily comply with local requirements. Require Australia Post to collect the tax? Or the courier company? Still going to cost to collect small amounts.

    Can't see it working.

      As I understand it, (and it was explained to me in a similar article a couple weeks ago), The postal system will check it when it arrives here. No doubt there will be a notice on the parcel about what is inside, and they will have the right to open it and see the receipt. I know that sounds ridiculous, but that's why it would cost the taxpayer so much to implement this stupidity... I am happy to be corrected though...! :)

      Last edited 06/02/14 1:51 pm

        Now this is where I don't get it.

        Currently, if you purchase something from another country, (due to the tax thresholds being different all over the world) a lot of companies label all their deliveries as gifts. They don't insert an invoice...

        I personally ordered led bulbs from china a few years back. I ordered a heap of them because even if they added gst it was still drastically cheaper than trying to get them here. (At the time $6 each instead of $45 each here, and that included shipping).

        So I actually ordered around $1500 worth. A massive amount, a very large delivery, which I expected to pay gst on.

        The delivery came, no gst charged, because the company that sent them stuck an invoice to the side showing a purchase price of $387.

        Customs opened the invoice, opened the package. Then sent it on. No extra charge.

        So currently, even for purchases over $1000, they are not collecting gst.

        If they continued to do it this way it would Just mean more staff needed to open smaller packages, that they didn't charge you on anyway.

        Makes no sense.

        Last edited 07/02/14 6:31 am

    The customer should be paying the fees resulting from the collection of taxes, not the government. This is what the brick and mortars have to do, so why should it be any different for the consumer.

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