Canberra pays little heed to retailers on GST

May 20, 2010: The Board of Taxation’s Board of Review, which has rejected any change to the application of GST to private imports, seems to have either ignored or misplaced a submission by the photographic industry and other business associations.

The Application of GST to Cross-Border Transactions Board of Review’s 87-page report lists 15 organisations which made submissions, with neither PMA nor PICA being among them.
The booksellers, toy, music and sporting goods associations are acknowledged as having responded to a call for submissions made last July, when the Board of Review was established.

Other organisations making submission were large accountancy firms – (the Board of Review had a wide brief to look at all aspects of GST and’cross-border transactions’ beyond the issue of the GST-free threshold of $1000), and the lobbyist organisation for large international freight forwarders such as DHL and TNT.

The photo industry was also not represented when a delegation led by the Toy Association visited Canberra in March. However, as the Board or Review had already completed its report in February, this visit was probably of little significance.

A group submission by business associations including PICA and PMA, published in Photo Counter in March, was lodged on February 8.

‘ Early in the year,’ said PICA executive director, Paul Curtis, ‘The 10 national associations involved in the last round of submissions identified a formal process of “2010-2011 Pre-Budget Consultation” in which the Government invites submissions.

‘We contacted Treasury and were advised they were still taking submissions, and as a result on February 8 the following submission was made by the 10 associations.

Copies were also sent to the Treasurer and Assistant Treasurer. However, there is no reference to this submission in the report. Why, once lodged with the Federal Government, this submission did not seem to find its way to the most relevant government forum, the Board of Review considering GST issues, is currently unclear.

PICA executive director, Paul Curtis, described the lack of acknowledgement of the submission as ‘highly offensive’.

‘I have written to the Minister to complain,’ he said.

‘The photo industry made a submission to the government. That material was in the hands of the Board of Review.’

All 14 recommendations of the Board of Review have been accepted by the government. Only one of these, Recommendation 13, relates to the GST-free threshold.

‘…the Government has accepted the Board’s recommendations on cross-border transactions,’ the Assistant Treasurer, Nick Sherry said last week.

‘Taken together, the Board’s recommendations will simplify the design of the GST cross-border rules.

‘They will improve the balance between ensuring Australia’s GST system does not unnecessarily draw in non-residents and ensuring the existing GST tax base is maintained.’

He said there will be no reduction in GST revenue as a result of implementing the package of measures.

Agreement of the States and Territories will be required to implement some of the changes. Subject to this agreement, the package will apply from July 1, 2012.

A close reading of the report indicates that in fact, offshore sellers could be even more advantaged by changes to be implemented. It would appear that an overseas seller can now organise Australian repair under warranty and be billed for the work from the repairer in Australia free of a GST component!

Moreover, the previously grey area of downloading software from overseas suppliers GST-free has been clarified in their favour. The notion of collecting GST on software sales from overseas – of any value – has been judged as impossible to implement.

Much of the review is actually focussed on ‘reducing the burden of GST compliance on non-residents’ – a phrase which appears regularly throughout the report, and indeed is a key term of reference for the review.

A full transcript of the relevant section of the report follows:

4.3.1 While the GST Act aims to tax the consumption of goods and services, including things that are imported, there are instances where these things are not subject to GST because of practical and administrative difficulties. The Board’s discussion paper noted some examples of these, namely:

• goods imported through the post that are valued at less than $1000 (the low value threshold); and
• the supply by an offshore supplier of intangibles, such as software and music files, and services over the internet made to a private consumer.

Views in submissions

4.3.2 The general view among retailers who made submissions is that the low value threshold has the potential to distort competitive neutrality and disadvantage businesses in Australia. There is a perception that legitimate Australian importers and distributors are subject to relatively high compliance costs compared to personal shoppers importing the same product. The high volume of international e-retailing in physical goods is also a concern to the Australian retailing industry.

4.3.3 Customs Agency Services submitted that:

By reducing the threshold back [to $250] the Australian consumer will be looking at buying from the Australian business and less likely to import direct from overseas, which creates more business, jobs etc to the local industry.

4.3.4 In contrast, other submissions from entities involved in handling and processing low value goods expressed the view that the low value importation threshold is appropriate and that any reduction would have to be considered carefully in relation to respective increases in costs due to increased processing times (leading to lengthier storage requirements and delivery delays). A submission by PricewaterhouseCoopers on behalf of the Conference of Asia Pacific Express Carriers (Australia) stated that:

The current low value threshold is set at an appropriate level that ensures postal and non-postal items are treated the same and strikes an appropriate right balance between revenue collection and administrative efficiency.

Board’s consideration

4.3.5 The Board acknowledges concerns in submissions about competitive neutrality in relation to international e-retail. However, the Board also accepts that there will be an increase in administrative costs of bringing more goods into the customs system in order to account for GST the costs of which is likely to outweigh any benefit.

4.3.6 The Board also is mindful that imposing GST on low value imports of goods could result in some Australian consumers bearing a disproportional cost. For instance, if the cost of administering a lower threshold at $250 was passed on fully to the end consumer this could see them paying disproportionately high amounts of GST and administrative charges to have their goods released from Customs compared to the value of the goods, such as if the value of the imported goods themselves was only $251. This would be of particular concern if the goods were unsolicited such as a gift from a relative overseas.

4.3.7 It is important also to note, in comparing local and overseas goods, other factors that impact on purchasing decisions, such as the costs of shipping and handling and some risk in terms of warranties, after sales service and the potential non-supply of goods for which payment already has been made.

4.3.8 The Board notes that the threshold of $1,000 has not been changed since 2005 and its non-indexation implies that, in real terms, the value of goods able to be imported without GST has, and will continue, to fall over time. This will reduce over time any potential bias in favour of imported goods over local goods of the same quality and value.

4.3.9 In relation to the importation of services by consumers, the Board’s view is that, based on the difficulty associated with seeking non-resident compliance with Australia’s GST and the extensiveness of online retail activity, it does not seem administratively feasible to try to bring non-resident supplies of services into the GST system at this time.

4.3.11 In light of all of these factors the Board is of the view that the current low value importation threshold is appropriate.

Recommendation 13: The low value importation threshold of $1,000 is appropriate. The Board is of the view that it is not administratively feasible to try to bring non-resident supplies of low value goods and services into the GST system at this time.

 

COMMENT: Kenny Rogers said it best – ‘Know when to hold ’em, know when to fold ’em’. It would appear that the photo industry and the other concerned sectors probably didn’t have a very strong hand anyway, even though fans of natural justice (including me) would beg to differ.

This review was primarily about reducing the burden of GST-compliance on non-residents – part of the ideological agenda of free markets, globalisation, deregulation and ‘frictionless trade’. The Australian government wants to make cross-border transactions easier. Australian retailers want these transactions to be harder – or at least more expensive! In the context of this report and its terms of reference, that was never going to happen.

It might happen, however, if Coles and Woolworths and a few other heavy hitters in retail want it to happen. This is one of the truly formidable lobbies in Australian politics and business. So far they have kept their own counsel. Perhaps the impact of loss of sales to GST-free imports on more marginal retail competitors (‘Mums and Dads’) is of more strategic benefit to them than the irritant of a slight shrinkage in the domestic marketplace.

Reading the report (well, someone had to!) it’s clear that the kind of messages the photo industry wanted to convey were received (even if there is some lack of clarity about who sent them). The problem wasn’t with the messengers- this Board of Review just didn’t like the message.

There may be unintended consequences following these changes. The immensely dense and complex sections of the report which address the relationship between overseas suppliers and ‘Australian agents’ , and recommends the streamlining of those relationships, could possiobly see Australian retailers doing their own GST-free sales from offshore. But I could be wrong ( it’s happened before ). I’m no lawyer, and after wading through this dreadful document, my head hurts!


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