Collection models for GST on low value imported goods: inquiry report

Imports International trade Taxation Goods and services tax Australia

Key points:

  • The Australian Parliament recently legislated to apply the GST to low value imported goods from July 2018, using a streamlined collection model that places the responsibility for assessing, collecting and remitting the tax on foreign suppliers.
  • Given the decision to collect GST on low value imported goods, the legislated model is the most feasible among the imperfect alternatives at this time. Implementing the legislated model:

    • should go some way to improving tax neutrality between imported and domestically retailed low value goods.
    • will bring partial rates of GST collection (due mainly to exemptions for small suppliers, as well as significant compliance challenges), but the revenue obtained is likely to significantly outweigh the administrative and compliance costs.
    • should avoid major disruption for consumers when importing goods, although some electronic distribution platforms have warned they may disable foreign vendors from selling to consumers in Australia.
  • Among the alternatives, ‘transporter-based’ collection models that require the delivery agent to collect GST could capture more revenue, but their feasibility is hampered by paper-based declaration processes still used for international mail; and the difficulties for Australia Post to negotiate agreements with myriad other postal services. They would also impose high administrative and compliance costs, and some would cause inconvenience for consumers.
  • ‘Purchaser’ and ‘financial intermediary’ collection models, using advanced technological solutions to minimise high compliance and enforcement costs, have also been proposed. However, their efficacy is untested and their lack of readiness for deployment by mid-2018 make them unsuitable at this time.
  • There is an in-principle case to contemplate delaying implementation of the legislated model, to provide more time for technological changes to play out, to learn from the experiences of other nations and to avoid ‘first mover’ risks.
  • Nonetheless, the Commission considers there is insufficient basis to recommend delaying the implementation schedule, given the Australian Parliament’s decision to apply the GST to low value imported goods. Waiting for better alternatives will not necessarily prove fruitful. Nor would implementation now preclude change later.
  • The Commission has identified some prospective improvements to the design of the legislated model and enforcement strategy, although it has not been in a position to adequately evaluate these options. If the legislated model does not perform broadly as expected, these options should be considered as part of a future review.
  • The legislated model and the suitability of alternatives should be reviewed five years from commencement, or sooner if triggered by evidence of unduly low compliance, unintended impacts on consumers or adverse trade policy responses.
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