GST on Imports Problematic

Monday, 10 January 2011  Features

A senior academic at the Australian School of Business has analysed the cost of applying GST to low value goods imported via the internet– and says the implementation could be problematic.

Associate Professor Dale Boccabella argues that this could cost Australia more. He says "the cost of collecting the tax may outweigh what tax revenue could be raised. As the Board of Taxation indicated around a year ago, there are many practical difficulties in collecting GST on goods bought over the web where the online shop is overseas."

He says there are two alternatives to collecting the tax, both of which would be costly and time consuming, and neither of which would actually raise any significant revenue. "We could get the Australian consumer to collect the GST on the sale made to them and send a remit to the Tax Office. The bottom line here though is that Australian Governments are very reluctant to impose tax collection or reporting obligations on consumers as opposed to businesses. Quite simply, consumers wouldn’t want the hassle, and wouldn’t be thankful for having this burden imposed on them."

The alternative is to ensure that all companies that can trade online with Australian consumers are registered for GST. He has also analysed this, and adds "The government is under considerable pressure to keep overseas companies with only a few Australian customers out of our GST system because of the high compliance costs that go with GST registration, which would mean that the compliance costs can outweigh the revenue collected."

de minimis’ (small things) exemptions are a common feature of Australian tax law. Dale Boccabella says "one could query why the low value threshold was increased so significantly to $1,000 (from $250) in 2005, and why there wasn’t much opposition from retailers at the time. The brick and mortar retailers may have a point that this is placing them at a competitive disadvantage. However Australia’s GST is ‘only’ 10%. Admittedly anecdotal, I have seen price differentials between on-line goods and brick and mortar goods that cannot be explained by the presence or absence of GST, and is more likely to be from the high cost structures of brick and mortar businesses, and possibly from excessive mark-ups."

Also, part of the online shopping surge may be due to the strength of the Australian Dollar, which is now at a 30 year high against Sterling, and hovering at parity with the US dollar. The issue is of concern to small retailers, but with online shoppers saving 20% to 50%, Dale Boccabella argues major retailers need to start passing on savings from importing on the strong Australian dollar, otherwise their consumers will go offshore.

Some purchases made over the internet with overseas companies may also have some home country indirect taxes imposed. Dale Boccabella says "If someone still finds it cheaper to buy from the UK – in some cases maybe paying 20% VAT and the shipping costs – rather than in store in Australia paying 10% GST, then Australian retailers really need to look at their cost structures. The competitive disadvantage argument of Australian brick and mortar retailers is not strong."