The GST Distribution Review into inefficiencies and weaknesses in the Goods and Services Tax, conducted by Nick Greiner, John Brumby and Bruce Carter, has directly countered the LVPPT (Low Value Parcel Processing Taskforce), with a call for an immediate reduction in the GST threshold to $500, and an eventual $20 limit.
We present the pertinent section of the Review in full:
Preventing the leakage of GST revenue from online imports
High priority should be given to measures that reduce the erosion of GST collections from overseas internet purchases. Not only does the current situation place domestic suppliers at a competitive disadvantage, this loophole is costing the States hundreds of millions of dollars in lost revenue.
The Panel’s views on how this issue should be addressed are set out below, in two parts:
First, the current low value import threshold could (and in the Panel’s view, should) be at least halved. This could be done almost immediately and would ameliorate the problem without requiring any structural changes to either the existing GST law or customs arrangements.
Secondly, the Panel urges both the Commonwealth and the States to consider how best to bring Australia into line with international practice in this area. Over the medium term, innovative ways of ensuring a level‑playing field and preventing revenue loss need to be found. One option worth close consideration would be to replace the current approach to collecting GST ‘at the border’ with one that imposed a GST liability directly on overseas suppliers of goods and services to Australians.
Physical goods
In 2011 the Commonwealth Government established a taskforce to examine this issue. The LVPPT report was published in July 2012 and a response from the Commonwealth is awaited at the time of finalising this report. During the deliberations of the LVPPT, this Panel made available to them an analysis commissioned by us on the issue of collecting GST on low value imports. This work suggested various ways to reduce the GST base erosion.
The current threshold of $1000 is out of line with overseas standards and seems open to flagrant abuse. The Panel has become aware of a number of practices, including overseas arrangements for parcelling purchases in amounts that will not trigger the threshold. Expensive cameras, for example, costing much more than the threshold can currently be purchased in their component parts and assembled by the purchaser without incurring any GST as long as each component (such as the body, lens, motor, battery and filters, etc.) can each be purchased for less than $1000. Anything other than a very low tax free threshold is exposed to such practices.
The final report of the LVPPT suggests that if the low value threshold were reduced to (say) $500, the additional GST collected would exceed the additional administration costs that would be incurred. There would be a net revenue benefit as a result, but it may not be large – perhaps around $30 million per annum. Beyond this, according to the LVPPT, lowering the threshold further would generate additional revenue, but administrative costs would increase by more, making that approach less attractive from a net revenue point of view.
The Panel accepts that the driver of overseas purchases is not necessarily GST, as often the direct import overseas price including GST would be less than the local purchase price. We are under no illusions that lowering the threshold would be a panacea to local retailers, as has sometimes been suggested. But to some extent this is beside the point. We can see no reason why the GST should not be paid on this category of domestic consumption as long as the costs of collection are lower than the tax paid. We therefore think that the GST low value import threshold should be lowered immediately to the lowest practical level that would increase the overall (net) size of the GST pool.
Recommendation 11.2
That the low value import threshold for GST be lowered to prevent the ongoing erosion of the GST pool. Initially, the threshold should be lowered so that it does not exceed $500. This should occur as soon as practicable.
Other overseas supplies
The LVPPT noted that overseas suppliers may already agree to voluntarily pay GST (on parcels worth more than $1000) to facilitate streamlined importation and processing of goods through customs. However, it dealt only tangentially with a number of proposals for making this mandatory — that is, overseas suppliers to Australian residents would be made directly liable for Australian tax.
The Panel is inclined to the view that collecting GST and other taxes on imports physically at the border is not the long term solution. This is a product both of the rapidly increasing volume of relatively low‑value physical goods that are imported after being purchased by individuals online, as well as the growing consumption of intangible goods and services (such as ebooks, for example). The amount of money at stake for the States is already significant and, if left unaddressed, could continue to increase.
Ultimately, only placing direct liability on overseas suppliers will address the avoidance of GST on intangible imports such as online purchases of music, videos and other software. If this occurred, then the administratively costly collection of GST at the border would no longer be required for ‘GST paid’ imports of any value.
The Panel considers that the cooperation of overseas suppliers could be forthcoming for the bulk of transactions, but accepts that incentives for compliance would need to be put in place with the direct liability approach.
The Panel notes that if compliance is at its most problematic for low value items, the incentives for non‑compliance are also least for such items. Likewise, the possible hardship or unfairness from confiscation of tax unpaid items is limited for low value items.
Recommendation 11.3
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 $20 or $50.
Well, this is very largely the recommendation that I made, and the PMA and the Retailers Association made, each with slightly different perspectives, over two years ago to the Productivity Commission. With an election due by November next year, chances are that now the ‘Yes Minister’ approach will be taken by government and the situation will drag on again and left to whoever wins next year. As the NAB has reported in it’s monthly series of Retail Online trading analysis, online is growing at 22% per annum, Bricks & Mortar at around 2-3%. It doesn’t take rocket science to know that with such a trend the tax base will fast erode away unless decisive action is taken.
It should be made very clear to political parties of both colours, 940,000 retail employees are also voters. It’s about jobs and the kind of society we want to maintain. State Treasurers seem now to understand. Now we need the Feds to do likewise.
One final reminder – we all got a one-off tax cut when GST was introduced. Maintaining the status quo is asking to have a double dip.
Most intelligent changes will come with a change of federal government. I can import up to $1000 a 100 times a day through the post. But try coming through customs with $1001 on the one invoice even if there are two travelling! Even if you are lining up to pay anyway they will make you use a customs agent ($250 minimum) and collect it on another day.
– Thanks as always for your input, John. I ran with this as I thought it was just such a superior piece of communication to the LVPPT report, which is full of contradictions and obfuscation, and hamstrung by the Productivity Commission’s economic rationalist dogma. Here you can actually follow the argument! Interesting to note that the analysis on the issue of collecting GST on low value imports (how it could be less expensive) was actually commissioned by this group and then handed across to the LVPPT group. I wonder if it had to be force-fed?
I agree with you that the ‘Yes, Minister’ approach is set to prevail until further notice. Unless Woolies and Coles quietly swing their lobbying weight behind the issue, it will be ‘hasten slowly’ – until say about 2016?
John I am intrigued by your comment that 940,000 retail employees are voters too. As the report above highlights the imposition of radically reduced GST threshold is unlikely to be the pancea to local retailers. As the imported price + GST is often lower (in my experience way lower) than the local price. Why then do you still link the push to lower the threshold to some potential backlash by retail employees should this not happen? How can my favourite HK camera store sell me a Canon 5d Mk3 at 2/3 the price here locally? As a working photographer and consumer it irks me that the decline of local retail is my responsibility and that my greed is losing Australian jobs. To be blunt the lobbying effort has been nothing short of a textbook example of how to alienate yourself from the consumer. How can we forget Gerry Harvey’s early contribution to the debate? The variation in pricing is simply too great to ignore. One can accept some variations in pricing due to greater transport costs etc. Most will not accept that the privilege for being Australian means paying a 1/3 or more for goods and services available overseas at substantially reduced prices. I can import my Italian racing bike from the US for $10k when the same bike costs $20k here in Australia. It would seem to me that your employees should be looking to the industry and asking what plans you have to address this and save their jobs. The answer ?? So far it is to blame consumers and drive more on-line and more recently simply silence. Priceless
Maybe if we began to think of all those hard-done-by Australian consumers as fellow citizens we could lift this debate beyond the ‘what’s in it for me’ attitude which characterises a lot of contemporary thinking on things economic.
As a community we share in the success or failure of the country. You wouldn’t be able to enjoy your $10 to 20K racing bike if we didn’t have decent roads for you to ride it on, and they are a result of the taxes from an economy largely involved with selling stuff to each other. Like you do with your professional photographic services. Where does the money for the taxes come if we buy everything from OS? It’s not just the 940,000 direct retail employees John refers to involved here. All the employees in companies supplying those retailers are also unemployed if the local distribution houses are closed down and the whole thing is handled from Singapore or wherever. Then there’s associated marketing communications (even little websites like this) insurance, cleaners, photocopier technicians, etc. etc. Outside of mining, wealth generation in the Australian economy is ALL ABOUT retail and support of retail.
Having probed and prodded on this issue for years now, I’m fairly confident in saying that the main reason Australian retailers are usually more expensive is that the source of their supply – authorised Australian distributors – is more expensive. That’s not necessarily a ‘bad’ thing as I understand economics – they have simply been following the sound economic principle – perhaps the Golden Rule of economics – of charging what the market will bear. Don’t we all?
Now that the Australian population has twigged (Oh my God, we’ve been paying extra all these years! Someone must be to blame!), there’s a bit of a lag while the distributors either adjust their pricing to retailers down – and that is happening in some parts of the the photo industry already – or come to the decision that they can’t make a buck with lower pricing from the local operation and shut down. Then there are all the good things we see as our right (but come at a cost) like decent wages and consumer protection and safety regulations. Then there’s the commercial shopping lease oligopoly which makes Australian retail rents among the highest in the world. I think, Sportsphoto, that you are discomforted by sending that $10K to the US (‘it irks me that the decline of local retail is my responsibility and that my greed is losing Australian jobs’) because at one level you totally get the idea of Australian citizens being in this Australian project together, and you know Australia is a high cost country. When people feel a bit guilty about a decision it can manifest itself in a kind of anger towards the people who draw their attention to the arguments against that decision. Think it’s called ‘transference’.
Let’s look at it another way: Big 6-month sports photography project. Say a pictorial documentary for the Australian Institute of Sport. Based on your ‘every man is an island’ thinking, you would have no issue with the AIS contracting their favourite HK photography studio to do the job for 2/3rds of the going Australian rate, I guess? This would be doubly worthy, as it would be saving Australian tax-payer dollars as well as being a great example of globalisation in action. It wouldn’t be the fault of the AIS if professional photography in Australia began to decline.
One of the main things that concerns me about this issue is the constant willingness for overseas companies ( especially camera and electronic online retailers) to undervalue the product so that the Australian consumer does not have to pay GST even if the value is over the $1000 threshold. You only have to spend 5 minutes on any camera forum to read of someone who has just imported $5k of camera gear and has an invoice with declared value of “$950″ and a description of ” warranty work” or “returned goods” which straight away give them a $450 headstart over an Aussie retailer. If GST was imposed through the company at the point of sale hopefully that would aide in stamping out this issue.
To have offshore companies blatantly saying ” No TAX to Australian Buyers” or, because of their ” sophisticated warehouse and logistic system you wil not have to pay GST!” really frustrates me.
Yes overseas is cheaper, but for a company to fudge the figures so the purchaser escapes the GST is’nt on with me. I read alot about people purposefully buying through these sites as they know they have bugger all chance of getting stung and having to pay tax, and this needs to be stopped.
Anyway thats my rant over.
Regards and a Happy Christmas to all. Warren
Dear Sportsphoto
I do not argue the case for a GST level playing field trying to justify major price differences. I believe it’s about two things: Levelling up the playing field, and been fair dinkum about the standards of living we expect.
Levelling things up with GST on all goods simply provides an equal basis for a company to compete. An Australian retailer is typically selling you that high end camera on invoice cost, depending on rebates and settlement discounts to run their business. Until recently manufacturers differentiated prices between countries. The internet made such practices invalid. All camera makers have made big strides on that this year. If there is a still a difference then it’s all the other costs we bear in this country that some other markets don’t.
And that’s the other variable: Our social values.
In Australia we judge that a minimum wage of $15.96 an hour is appropriate, and a raft of other conditions should exist to provide education, health care and a range of social benefits to support those less well off or incapacitated. All that adds up.
If you do ultimately demand that every item should cost the same here as it does in Hong Kong, then you should also accept the abandonment of all the other things you enjoy in this country. Having been in HK this week, amid an acrid mist of pollution, and seen the conditions of some of the retailer staff’s work conditions behind the front of shop, or the 90 sq. M average apartment for a family of four that house more than 75% of the population, then we’ll be able achieve similar prices. Is that progress?
As a photographer you’d be well aware how in the past 20 years, photographer numbers have shrunk as media companies moved to piecework, agency and other ways to lower the cost of pictures. And you’d also be aware that even despite those cost cuts, most print media companies are themselves now threatened by digital media. That’s because we’ve all become hooked into the false believe that you can get good quality content for nothing. Result: Demise of newspapers and fewer jobs for journalists and photographers.
No, GST is not just about the 10% price difference. It’s about what we want and value for our society.
I was going to express an opinion but came back to the computer from the front of shop.after .looking at my range of no cameras.Boy how things have changed since GST..
We used to sell in excess of half mil in camera hardware…now very little…
The industry is in the sunset..pity to see but retirement looks good..
Little guys got the flick from wholesalers…instead they saw a better pasture in HN and alike. sorry have no sympathy
But great to see we are now community minded.