Online shopping and potential changes to the low value threshold: costs and benefits for government, consumers and retailers

Internet Retail trade Taxation Prices Electronic commerce Australia

Imposing the GST on different types of imports has been a contentious topic for some time. Different parts of Australian society stand to benefit or lose significantly depending on how, or whether, the system is changed. This paper outlines the regulatory framework, including the relationship between online shopping and the low value threshold.

Executive summary

  • Australians spent $15.7 billion in the year to August 2014 buying online from both international and Australian retailers. Online shopping by Australians has increased over time, and is likely to continue doing so. A significant portion of Australian purchases online are from Australian retailers.
  • The low value threshold (LVT) exempts eligible imports below $1,000 in value from a number of Commonwealth legal requirements. One of these exemptions is that goods below $1,000 in value are generally not subject to the goods and services tax (GST).
  • This LVT exemption enables international retailers to sell to Australian consumers without charging GST. This can contribute to a price differential between goods sold by Australian retailers and by international retailers, which can be a significant factor in consumer choices. To the extent that the LVT influences consumer choices (and thus reduces the impact of underlying market factors), it distorts competition between Australian and international retailers.
  • The LVT is not indexed, and has remained at $1,000 since 1985, losing value in real terms. If indexed, the threshold would be significantly higher.
  • The majority of imported items below the LVT are quite low in value (many are less than $100).
  • To collect GST on items below the LVT would require additional processing. The cost of this additional processing depends on the level at which a new threshold would apply—whether at zero, or some value between zero and $1,000.
  • Depending on the level at which a new threshold is applied, the cost of the additional processing required might be greater than the revenue raised, resulting in a net cost. This would reduce the GST revenue flowing to state and territory governments.
  • A number of previous reviews have examined the issue:

–      The Productivity Commission recommended in 2011 that the LVT not be lowered unless it was cost-effective to do so, and that further work be undertaken.

–      The Low Value Parcel Processing Taskforce undertook more detailed research in 2012. They recommended further analysis, and that any goods which were subject to a lower GST threshold also be subject to border agency fees and charges.

  • A number of countries apply fees and charges to incoming international mail items. These fees and charges cover the cost of processing, enabling governments to collect tax revenue on low-value items.
  • Previous analysis suggests that removing the LVT (charging GST on all items) would have a very marginal negative impact on the economy overall, but would benefit the retail sector.
  • The extent to which state and territory governments, household or retail sectors benefit or lose from changes would depend on the level at which the threshold is set, and whether fees and charges are used to cover the cost of processing.
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