Three Reasons Why Australia's Overseas 'Parcel Tax' Is Stupid

Australian Treasurer Joe Hockey last week announced that the existing GST exemption for low-value imports would be removed, starting July 1, 2017 at the latest. Non-resident companies will be expected to collect and remit the GST to the ATO. But will such a system work in practice? Here are three sizable holes in the government's plan.

The low-value threshold (which exempts imports costing less than A$1,000 from GST), has been on the government’s radar for a number of years. It is high by international standards, and apart from the forgone GST revenue, it gives an unfair pricing advantage to overseas retailers.

In 2011, the Productivity Commission said:

There are strong in-principle grounds for the low value threshold (LVT) exemption for GST and duty on imported goods to be lowered significantly, to promote tax neutrality with domestic sales. However, the Government should not proceed to lower the LVT unless it can be demonstrated that it is cost effective to do so.

But the Productivity Commission also estimated it would cost $2 billion to collect the additional $600 million of additional tax revenue dropping the threshold would deliver. This cost estimate was based on the assumption that all parcels would be subject to the same GST collection method as currently applies to imports costing above $1,000. That is, each parcel would be individually processed by Customs and Border Protection, with the GST being collected from the Australian consumer before the parcel was released.

The Re:think tax discussion paper floated the idea that “there are alternative arrangements for collecting GST on low value goods that would not be as prohibitively expensive as current arrangements”.

Last week the states and territories unanimously agreed to a Commonwealth proposal to reduce the low-value threshold to nil, and to impose the requirement to collect and remit GST to the ATO on the overseas vendor.

With little concrete information available as to how such a system will be implemented and how it would be enforced, the proposal leaves more questions than answers.

Three Challenges

According to the Treasurer’s press release:

“As goods would not be stopped at the border, administering a vendor registration model would have a relatively low cost.”

If goods are not stopped at the border, Customs and Border Protection are presuming that the overseas vendor has complied with the relevant GST requirements. However, the information currently required to be provided on an international mail declaration would provide no indication as to whether GST had been collected and remitted to the ATO. Even if the item did indicate whether GST had been collected, the various scenarios outlined below highlight the potential difficulties of an overseas vendor registration system.

Scenario 1: The overseas supplier is not required to be registered, meaning the imported good(s) are not subject to GST

Australian businesses are only required to register for GST if their annual turnover is greater than $75,000. Goods and services sold overseas are not included when calculating turnover for GST purposes. The Treasurer has indicated this would be the same for international businesses, with the figure that is relevant for GST turnover based on the value (in Australian dollars) of goods sold in the Australian market.

As not all overseas businesses will be required to register for GST, abolishing the low-value threshold will still not result in all imports being subject to GST. If an international parcel did indicate GST had not been collected, would an overseas supplier simply be able to note on the parcel that GST registration was not required? If so, how would customs determine the accuracy of that statement?

The Treasurer was unsure how many overseas businesses would be required to register, telling a journalist during a press conference, “There could be hundreds … there could be a very large number” and then “I’ll come back to you about the specific figures that we have, but we’re working to improve that data”.

Scenario 2: The overseas supplier is required to be registered based on turnover, but has not registered and has not collected GST

The Treasurer was vague when asked what would happen if an overseas company did not collect GST as required, stating “increasingly the global pressure is going to force them to respond”.

Again, it is unlikely Customs and Border Protection would know whether an overseas supplier was required to register for GST. And if an overseas supplier was unwilling to register for GST despite being over the turnover threshold, would they willingly acknowledge this? If it was acknowledged on the parcel that registration was required but had not occurred, would the ATO pursue the overseas company, or would Customs and Border Protection revert back to current collection procedures and require the Australian consumer to pay the outstanding GST?

The Low-Value Parcel Processing Taskforce has said that any GST obligations imposed on international suppliers directly would “likely be non-enforceable, and hence rely on voluntary cooperation by suppliers”. However, using current collection procedures would result in additional processing costs that are cost-prohibitive when applied to low-value parcels.

Scenario 3: The overseas supplier is registered, and has collected GST from the Australian consumer

Assuming the overseas supplier has registered for GST and has collected the necessary tax from the Australian consumer, there is still no guarantee that the GST would be correctly remitted to the ATO. But the cost of auditing such an entity would likely be prohibitive.

Difficult To Measure, Harder To Enforce

One of the reasons for abolishing the low-value threshold is to ensure overseas businesses are competing on a level playing field with their Australian counterparts. But this will only occur if the system for collecting GST on imports can be adequately enforced.

The Commonwealth proposal to require overseas suppliers to collect and remit GST on low-value imports raises numerous questions as to enforcement, with comments made by the Treasurer indicating a significant level of voluntary compliance by overseas suppliers will be required.


Kathrin Bain is Lecturer, School of Taxation & Business Law at UNSW Australia

This article was originally published on The Conversation.


Comments

    One reason why the overseas parcel tax is stupid;

    Pushing a tax just because some brick n mortars cry fowl, while they are unable to evolve in an environment that isn't accommodating to their chain of thought any more... Zzzz

      at least Gerry Harvey is happy now

        But don't you know; mo' money mo' problems is apparently the store of Mr Harvey's life.

    Have you ever noticed on international parcels there is a field marked "value of goods"

    Currently senders are not required to put the value of an item unless it exceeds $1000 however customs can stop entry of an item if they believe it's value to be above the $1000 threshold with no declaration.

    I totally agree with the Author that a registration system for overseas countries is totally unmanageable. what I believe is far more likely is that the "value of goods" field will become mandatory and all values will be taxed. This approach is no less open to fraud than the current system however the issue here is the amount of extra work it would create. The question is: is the amount of extra work generated to review every packager entering the country worth the revenue generated?

      This. And to answer your question - No. This will be a complete shambles and will benefit no-one. Unless you work in Customs in which case a few thousand jobs in their mail sorting rooms will soon become available. The cost of this is going to be staggering. I order $1 items from Hong Kong all the time via ebay (pens, stationery, gardening stuff) and they're in envelopes - the time it takes to administer that is worth about $30 give or take and they will generate $0.10 for the government. It's ludicrous to assume that I'm in the minority - the vast majority of people order piddly little things like that in their millions, this is buffoonery in the maximum.

        I do the same. Suddenly my $1 screen guard becomes $20

        It sounds like a win to me: collect more revenue, even the playing field for Australian businesses, AND create thousands of jobs in customs. Maybe even improve the balance of payments situation as well FTW.
        We may perceive that Aussie businesses are ripping us off, but most other countries have strict quota / tariff, or unofficial trade barriers preventing us exporting to them. It isn't fair for Aussie businesses. If we keep buying from overseas our money disappears and doesn't come back. Aussie companies lose business or close down. They are the ones employing us. Long term we have no money and no jobs. For me, not worth it just to buy things cheaper, I'd rather have a job.

        Last edited 26/08/15 5:17 pm

          @karmadillo so spending $20 to make $10 is a good idea? That money could be better spent anywhere else. Besides, it's never been better to buy local, international shipping costs always sting and with the AUD doing more poorly than ever (0.71USD, 0.45£, 0.62€) you'd be crazy not to look local first.

          I think the system will create more employment, for the people implementing it

            But won't they be lazy Public Servants?
            If there is any this government hates it's Public Servants

    Paying GST on things bought from overseas wouldn't really faze me that much as I would still save heaps more by avoiding the Australia tax, which is why I buy online in the first place.

      The "Australia Tax" would be a much better target: the companies charging the extra money for goods are right here. Some were even asked about their practices in an inquiry [remember that?]

      If a company takes a $500 product and sells it here for $1000, I would have no problem with the government demanding a percentage of that. Backdated.

        Australia Tax? Erm how is going after an imaginary first world problem going to help the government raise revenue? I'm confused...

          Take a product available in a USA store [so already making a profit]. Convert the price to Australian dollars, then look at the price in Australia. Heck, I'll throw in a 5% margin for exchange fluctuations.
          Is the Australian version more expensive? If so, the difference is profit revenue - being created in Australia. Profits which should be taxed in Australia, at our tax rates [not hidden in offshore tax shelters].

            Okay. But things aren't more expensive in Australia. iPhone US pricing starts at $650, which is $920 au. Funnily enough, au pricing starts at $929. You could argue that's cheaper here, as the us price doesn't include sales tax.

            Then there's video games. A $60 game in the us is worth about $85 au. That figure seems familiar somehow...

            Like I said, you're talking about an imaginary thing that's never existed when you talk about the Australia tax. You'll have to get very creative to prove your point.

              You're only thinking about the recent changes in currency exchange. What about when the aussie dollar was greater or equal to the US dollar? Did they lower the price or profited from it?

              Right now the aussie dollar is somehow on the rise, if it goes equal will you prefer to pay $650 in the US or $929 here?

              I bought a gaming laptop around 2 weeks ago. I paid ~$1400AUD (Originally ~$1000USD). Same laptop when I looked it up here? $1999AUD.

                Actually no, I was thinking about the historic value of the Aussie dollar an ignoring its inflation over the last decade.

                70-75 US cents. That is how much the dollar has always been worth. Look it up dude.

    So as a business who buys an item from overseas gets to declare the GST paid as a deduction off their GST payments however its never collected by the ATO from the overseas supplier. Yeah I can really see how this can make lots of money...

    Last edited 25/08/15 9:19 pm

      Overseas companies won't get GST deductions (from Australia) unless they buy things from Australia (which they don't).
      They probably get GST deductions of some type from their local government though.

        I am referring to Scenario 3.
        If an Australian business buys something it gets to claim the GST back as a deduction when they do their lodgement. If they buys from an overseas supplier "charges" GST that doesn't actually remit it to the Australian government, we have an issue where the government has applied GST deductions without receiving the initial GST.
        Hence my sarcastic remark about this generating income when in fact it could reduce income for the government.

    I just want to let you guys know that I imported a $1500 3d printer and the customs guys "valued" it at $8000, demanding I pay the tax on that amount. The whole process of correcting them and proving it's actual price delayed my delivery by nearly a month.

    I expect a lot more people to have these problems in the future now.

      that's actually an interesting point. Who sets the value? I have bought things from overseas that were less than $1, but sell locally for up to $15 - how will Customs know the value of *everything* coming in?

    It'll simply be enforced like in the UK. You pay for the tax at time of collection from the Post Office plus a Customs fee (currently 12pounds in the UK) regardless of value. So a 99c eBay item would cost $12.99 plus GST all payable to the Post upon collection of parcel. Otherwise you don't receive the parcel.

      That's just crap. What if it was a parcel that was not ordered but sent as a present? Suddenly you have to pay to receive your own christmas / birthday present that you didn't necessarily want.

        you can always not collect it..but I see the point you are trying t make..

        That's one of the things I hate most about it. I can't send anything to friends and family in the UK anymore. Last time our friends ended up paying more than the cost of the item just to collect our 'Gift'. We now buy online from UK stores which I guess was the government's intention all along. It sucks though!

        That's exactly what happens. I sent a present to a friend and he had to pay the VAT. I felt so bad, I probably put the real value of the presents as well not knowing.

    How about Just charging g.s.t on all overseas bank & credit card transactions.
    The banks can collect on behalf of the government.

      So how do you govern PayPal then?

        An adjustment to the terms and conditions of the Australian Financial Services Licence.

      Well all debit and credit transactions are transacted overseas so that won't work...

    So, a government which is always pushing the need for increased productivity plans to implement a taxation regime which uses anything up to a couple of billion dollars worth of Australian resources in order to redirect funds to the tax department.

    Or to put it another way... fundamentally the goal here is to take money that Australians would normally be free to retain and spend freely - including on other Australian goods and services - and divert it to the Government, with the scheme being handled by a large pool of Australians who will then not be free to be doing, well, something productive.

    Which one was the part of small government again?

    In the meantime the super rorts (amongst others) roll on.

    What about when relatives send me parcels from overseas e.g At Christmas or Birthdays?

    How will they know that it is a gift and not something I've bought from overseas? - They won't, often cheap imports from china off eBay come marked as gift also.

    Well done Mr Hockey and Mr Abbott lets increase our tax on imported goods which will end up costing more to enforce than the possible revenue it will raise.

      They seem pretty happy with their "Direct Action" response to Climate Change which saw them eliminate the Carbon Tax, but keep the kickbacks and add handouts to polluters. So they do have form in this field of logic.

    Ya know what would be REALLY evil..If a pissed off company just started posting items of insignificant weight (to minimise their costs) to addresses of politicians and mark them all with a $1001 cost.

    What about freight forwarders? I purchase the item and have it delivered to the forwarder. They repackage and send it on. I'm not paying them for the goods, only for sending the item.

      That would be a service so still taxable I guess...

    Scenario 4: The overseas supplier does not register for GST, charges the customer GST and just keeps the extra money.

    Foreign companies just wont bother for the size of the Australian market, we will have to buy Australian or, more likely Australian companies selling 'Gourmet/Luxury/European styled/Whatever superlative you like' stuff that is knocked up cheaply with rubbish materials in the back streets of a Chinese industrial area,

    Warning rant contained within ;-)

    Sooo lets say I am a foreign ebay company (in Hong Kong for the sake of argument) I can sell my $1 widgets to England,US etc no problem. I've got 20 bajillion customers in those 2 countries and 5000 in Australia, so now I have to add a whole complication in my system to add 10% for those customers and pass it on to the user and then do something with what i collected, fill in paperwork, fill in forms and regiister for some tax thing in a foreign language and possibly a foreign script. How do I keep up with any changes they introduce, what happens if I do it wrong? Hmmmm
    "Item not available to ship to Australia"
    Result Austrralian consumer has no choice but to buy from an Australian reseller.
    have a look at Jaycar's prices for low cost high volume items (i.e. should be very cheap) like LEDs, resistors etc and then look at the same on Ebay. Not blaming Jaycar by the way just something I do often.

    Alternatively lets say i am Marks & Spencer, Macy's (sorry US dont know much about your 'stores') or someone. I WAS looking to come to Australia employee a shed load of people open up new shops (not 'stores' ;-) ). The government is looking to radically change the tax laws so I can't negate my taxes like I can in a lot of other countries. Hmmm OK well stuff that at least I can keep sending them parcels.
    Oh wait I now cant send parcels without adding a bunch of tax stuff to my already complicated international shipping system. Hmmm how many customers are there in that market...... Hmmm yeah not worth it.
    Result Consumer cant even buy foreign stuff from retailers. It will have to go through the already proven to be insane list of importers and 'handlers' who will mark it up 300%

    Forgot to add - does anyone recognise this system from 10 years ago?

    I have 3 Australian online stores and we have a hard time competing with the international market of imports. It's not because we can't evolve, it's because we can't compete with prices that don't include GST. This is due to cost prices being expensive, but also due to the wages everyone in this country gets paid as well as other things that other countries have at much cheaper rates.

    A purchase that is imported can instantly be around 1/10th cheaper due to there being no GST on the purchase.

    I am all for this, we need to protect our own stores as we can't rely on always importing what we need directly from overseas, it's a business model set for failure.

      If you think the attempted application of gst will make people flock to your online store, you are sadly mistaken.

      I know - they can introduce a Slavery for Asylum scheme where bitter business owners complaining about the minimum wage can adopt an asylum seeker for food and board. That will Protect Our Shops!

      If you say you can evolve, then maybe you need to evolve out of importing cheap goods and selling at a markup and, shock horror, maybe start producing.

      This argument only flies if you're charging less than 10% more than the direct import one. Doesn't stick when an item is 5-10 times the price.

    No doubt those retailers would love to understand how they can 'evolve' out of having to pay tax. Please enlighten them.

    Wow this will be so great when I have to buy things that you literally cannot get in this country.. I've always wanted to pay more for things that we just don't make...

    I already have people flocking to my stores, with $8+ million dollars in combined sales last financial year. I don't think i'm sadly mistaken, i'm just stating what I understand and I like to think that I have a pretty valid opinion on the matter.

    If introduced like the UK system, it would be great for Australian retail as a whole. You can complain that prices here are too expensive in Australia, etc, but to save the industry as a whole, I honestly think that the imports need to be taxed. And that's an opinion from someone in the Australian online industry.

    There are even financial strains put onto AusPost through the importation of cheap products from China (like the $1.00 products). AusPost are actually going backwards on these deliveries and it is affecting postage rates within Australia.

    But yeah, each opinion to their own.

    Conspiracy theory: Maybe the government does incredibly stupid stuff like this to distract us from what else they are doing.

    They must be up to something big....

    Jogn I am glad you have a booming Aussie business more power to you. Most of the online stuff available here is way more than 10% more expensive than available elsewhere. I bought a camera a couple of years back that at 1200 bucks was less than half of what was available here. i get you dont really buy in the massive bulk these guys do but still...... The 10% I paid on that added to the ridiculous DHL charges still made it an incredible bargain. i could setup a store importing them at retail cost plus GST and still make a healthy profit selling at 25% under anybody else in Australia.

    It is 2015. I fail to believe that there is not a cost effective way of gathering this revenue. I don't know what the government is proposing precisely, but we should definitely make some changes.

    If you believe in GST as a whole, then I think it is difficult to make the argument that it shouldn't be applied to overseas goods.

    @jaded, you're a bit off on iPhone pricing...

    AUS iPhone pricing starts at AU$1079 : http://www.apple.com/au/shop/buy-iphone/iphone6s (18.6% above the US price)

    US iphone pricing starts at US$649 : http://www.apple.com/shop/buy-iphone/iphone6s (equates to AU$909.5 at the current FX rate)

    So, Apple are making an additional AU$169.5, per iPhone sold in Australia. Why shouldn't that be taxed as profit achieved in Australia?

      Yes but you forgot to add state sales tax to the us pricing, like I said. The average is around 10%. In that case, you're talking about a discrepancy of less than $100au. When you factor in the time that the price scheme was set (just over 12 months ago) and adjust for a historical exchange rate, I suspect you'd find there's even less of a discrepancy; hardly enough to call it significant.

      And good too see you ignored the example of games pricing which is arguably more relevant to the average overseas purchase than the iPhone. Bravo!

    This is really stupid idea. It doesn't help a free market economy as it doesn't encourage spending and investing. It's time for Australia to really compete in international market. Compete or be poor. Just look at Germany, they lost both WW1 and WW2 but their economy still recovered and grown from the scratch.

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