GST equality law still faces rocky road

The elimination of GST-free sales from foreign retailers has taken another slouching step towards reality with the Productivity Commission’s somewhat equivocal recommendation to adopt the ‘vendor model’ – GST collection by the retailer – from July 1, 2018.

In short, this is a long way from being ‘in the bag’. The PC’s endorsements of both the model and the start date are deliberately hedged, and give the Federal Government justification for ‘kicking the can down the road’ once again.

‘At least it is a step forward towards a level playing field,’ CR Kennedy & Co managing director, Malcolm Kennedy told PhotoCounter. ‘For too long, Australian retailers have been unfairly disadvantaged and discriminated against by our own Government,’ he said.

‘If the Government delays the implementation of this yet again , remember it was originally going to be introduced in 2015, we will know that this Government cannot be believed when they say they support small business,’ Malcolm concluded.

(CR Kennedy has distinguished itself among Australian suppliers to photographic retailers, and retailers themselves, in making a submission – recommending the ‘vendor model’ – to this latest PC review.)

Unfortunately, the tone of the report indicates the debate is not over. The Key Points in The Collection Models for GST on Low-Value Imported Goods report state: Given the decision to collect GST on low value imported goods [ie, we don’t really approve of this decision by Parliament], 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.

In other words:
– its a bad model, but better than the rest;  it will only go ‘some way’ – 10 percent? 80 percent? – to levelling the playing field and; be prepared for a boycott of Australia by Ebay et al if this model is adopted.

Insofar as timing is concerned, the PC had this to say: 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. It then goes on to state that it wouldn’t actually recommend a postponement ‘given the Australian Parliament’s decision to apply the GST to low value imported goods.’ [ie, but if the Australian Parliament did make the decision to postpone this legislation we don’t approve of anyway, we would endorse that postponement.]

As a long-standing fan of globalisation and untramelled, borderless free trade, the Productivity Commission is fundamentally opposed to imposing GST on offshore sales. But the real opposition in the next six months will come from one of the most powerful economic blocs in the world today – the aforementioned ‘electronic distribution platforms’ – Ebay, Amazon, Alibaba, etc.

This group has gone so far as to accuse Australia of somehow breaching international trade treaty obligations by collecting GST on overseas sales, ‘as it adds unduly to the cost of trade’.

In submissions and public appearances to both a Senate enquiry and the Productivity Commission, this group has argued militantly for a ‘Logistics’ or ‘Transporter’ model – collecting GST on low value goods via freight carriers.

Ebay has threatened to block Australians from buying from offshore vendors rather than comply with the new law.

‘Regrettably, the government’s legislation may force eBay to prevent Australians from buying from foreign sellers,’ Ebay’s vice president and managing director for Australia and New Zealand, Jooman Park, wrote in a submission to a Senate inquiry. ‘No tax would be paid to Australia and none would be owed. It would raise no revenue, deny Australians access to choice and lessen price competition.’ (As they used to say in old movies, ‘Blackmail is an ugly word, sir!’)

Even though Amazon Australia is about to commence onshore trading, it will continue to oppose the vendor model as it will be required to collect GST on behalf of its Amazon Marketplace vendors, and it’s an unwelcome international precedent. (Although CR Kennedy’s PC submission notes that large offshore retailers such as B&H are already collecting GST on behalf of the Canadian government.)

Amazon’s threat to the Australian government at the Senate enquiry was not withdrawal of its service, but outright civil disobedience: ‘The bill imposes an administrative burden on sellers and electronic distribution platforms which will create an inherent disincentive for them to comply’. – In other words, for Amazon, compliance with the laws of the countries within which it operates is dependent on whether it judges the administrative burden acceptable.(Paying tax? Another one of those unacceptable ‘administrative burdens’!)

So the battle is not over, and the opposition is formidable. As the Productivity Commission report points out: Australia’s position as the first to implement a vendor model for all physical low value imported goods gives EDPs strong incentives to try to supress the widespread uptake of a model that requires them to collect GST.

Productivity Commission – GST collection-models-overview