Online purchases face GST hit

A new report recommending GST reforms is proposing to eventually instate GST on online purchases of over AU$20, calling for an immediate solution of halving the current AU$1000 threshold.

The GST Distribution Review, by former premiers Nick Greiner and John Brumby, and business expert Bruce Carter, was released on Friday. It calls for a number of reforms; among them, GST on online purchases that are as low as AU$20.

The current threshold of AU$1000 for GST on overseas purchases, the review said, is out of step with the rest of the world. They said it is currently open to abuse, as consumers can purchase components of expensive items separately, such as cameras and lenses, to circumvent the threshold.

By lowering the threshold to AU$500, the government would be able to recoup the additional administration fees, and bring in around AU$30 million in additional revenue per annum, the review said.

Its recommendation is that this threshold be lowered immediately, but the long-term goal would be to bring it right down to around AU$20.

The review recommended:

That the Commonwealth and the states jointly examine as a matter of priority ways to secure the GST revenue base against its continuing erosion through the growth in imports purchased online.

This examination should include considering amendments to the GST law, so as to make overseas suppliers to Australian residents liable for remittance of GST on all supplies of both goods and services that would otherwise be subject to GST if purchased from a domestic supplier. Such an approach would enable the GST-exemption threshold for physical parcels to be reduced to a nominal level, no more than AU$20 or AU$50.

Australian retailers have long been calling for tighter GST on overseas purchases; on this point, however, the review stated that goods purchased overseas would probably still be cheaper than what customers would pay locally. Its stated aim is instead to widen the GST pool, rather than help local businesses.

Consumer advocate Choice said that the recommendation is also likely to cause inconvenience to customers. Head of campaigns Matt Levey said in a statement:

The problem of collecting GST from overseas businesses is that they have no obligation to pay it. This report proposes punishing Australian consumers for the actions of overseas companies who don't pay the GST by confiscating goods before a household receives them.

The Gillard government, however, has rejected the recommendation for immediate change. Assistant Treasurer David Bradbury said in a statement today that it is not currently cost effective to lower the GST threshold on overseas purchases.

As the taskforce's report made clear, there are no simple or quick solutions. With around 58 million parcels entering Australia under the low-value import threshold each year, lowering the threshold before putting in place significant reforms to processing capabilities would cause major disruptions to the international mail service, and result in major inconvenience to the businesses and consumers that rely upon it. Without greater efficiencies in the system, the cost to taxpayers of collecting the GST on low-value parcels would also outstrip the revenue that is collected.

He also noted that online purchases (both domestic and overseas) only make up 6 per cent of retail sales, and overseas online purchases just 1.5 per cent.

The full interim response can be found on the Treasury website, with the full response coming sometime in 2013, Bradbury said.