Discussion paper

Collection models for GST on low value imported goods: discussion paper

International trade Imports Taxation Goods and services tax Australia
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The Australian Parliament recently legislated the introduction of new measures to collect Goods and Services Tax (GST) on low value imported goods, from 1 July 2018.

Aside from tobacco and alcohol products, physical goods with a value of $1000 or less are currently exempt from GST when imported into Australia. This contrasts with the treatment of imports of higher value goods and of domestic sales of goods, which generally do incur GST.

The exemption for low value imported goods was an element of the original GST provisions that commenced in July 2000. One of its effects has been to advantage consumer imports of low value goods relative to domestic sales of equivalent goods. However, with internet commerce still in its infancy in 2000, consumers were directly importing only a small quantity of low value goods.

Internet commerce has grown markedly since then. In the year to March 2017, NAB (2017) estimated that about one fifth (approximately $4 billion) of total Australian online purchases were from abroad. With online retail being equivalent to around 7 per cent of sales from the traditional bricks‑and‑mortar retail sector, the exemption from GST is no longer immaterial in either a tax revenue or competitive neutrality sense.

Some of these concerns have arisen in other countries too. After many years of work, in 2015 the OECD published a survey of potential approaches to collecting GST or value added tax on low value imported goods as part of its broader Addressing the Tax Challenges of the Digital Economy agenda (OECD 2015). Several countries are now investigating methods to improve the efficiency of their collection of GST/value added tax on imported goods and extend collection to lower value goods.

In Australia, the Productivity Commission examined whether the $1000 ‘low value threshold’ (LVT) (which also applies to customs duties) should be removed or lowered, in a 2011 inquiry into the retail industry. The Commission found that the benefits of doing so would be far outweighed by the collection costs. It recommended the investigation of new approaches for handling low value imported parcels that could enhance the cost-effectiveness of reducing the threshold, particularly as the volume of online purchasing increased (PC 2011).

The Government subsequently established a Low Value Parcel Processing Taskforce. Its 2012 report recommended a new and simplified approach to collecting GST on low value imported goods that could allow the GST threshold of $1000 to be lowered (LVPPT 2012).

In the May 2015 Budget, the Australian Government announced a measure to collect GST on cross-border supplies of digital products and services. Legislation was passed and the change took effect on 1 July 2017. This follows implementation of similar measures elsewhere (such as the EU), and is distinct from GST collection on low value physical goods.

In mid-2015, COAG agreed to extend the GST to cross-border supplies of low value goods, and in 2017 the Australian Government introduced a Treasury Laws Amendment (GST Low Value Goods) Bill 2017. The bill retained the LVT at $1000 but provided for a new system for imported goods that fall under that threshold. It places the onus on foreign vendors, as well as redelivers and electronic distribution platforms (EDPs), to collect and remit GST on those goods (see section 2). These new measures were also to commence on 1 July 2017.

The bill was subsequently referred to the Senate Economics Legislation Committee, and then passed into legislation in June 2017 with two amendments. These were to delay by one year the commencement of the new measures, and that there be a Productivity Commission inquiry on the matter.

The inquiry’s terms of reference require the Commission to consider:

  • the effectiveness of the new measures
  • whether models for collecting GST in relation to offshore supplies of low value goods other than the new measures might be suitable (including evaluation of the effects of the models on Australian small businesses and consumers)
  • any other aspect relevant to the implementation of the new measures.

The terms of reference refer to the collection only of GST from low value imported goods. Changes to the collection of other taxes and charges subject to the LVT are beyond the scope of this inquiry. This includes customs duties (such as tariffs) and border processing fees and charges. However, in considering certain collection models, the interactions with existing systems and taxes may arise.

The Commission is to report to the government by 31 October 2017, necessitating streamlined consultation procedures for the inquiry.

Submissions are due by Wednesday 30 August 2017.

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