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.