Policy dilemma: implementing low value GST on imports

GST, goods and services taxIn February, when Treasurer Scott Morrison moved an amendment proposing to remove the low value threshold (LVT) exempting imported goods valued less than $1,000 from GST, there was optimism that the seven-year campaign pushing for reform may be nearing its end.

But employer groups walked away from a Senate hearing on the Bill earlier this month, more uncertain about the nature of any prospective measures and regrettably admitting that there is a risk that the reform could become another zombie budget measure leading into the next election.

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Labor, which maintains a position of principled support for the Bill, has called on the Coalition to delay the implementation to 1 July 2018, citing issues with the proposed model and the level of stakeholder consultation undertaken.

Liberal Senator Jane Hume caused a stir last Monday, telling media that she is also onboard with a delay alongside Senator Nick Xenophon, who has called the current Bill “completely impractical”.

Australian Retailers Association executive director Russell Zimmerman now says support for a July 1, 2017 roll-out of the legislation, which was originally advocated by the Treasurer, is “quickly” evaporating within the Government – at a time when political attention is shifting to the wider legislative package in the upcoming budget.

“I am losing faith very quickly in both the crossbenchers and the Labor party,” said Zimmerman, agreeing that a delay, and even a possible loss of bipartisan support, was possible.

Figures floated by eBay and subsequently confirmed by Treasury outline expected compliance rates under the current version of the plan that are as low as 25 per cent, leading Assistant Shadow Treasurer Andrew Leigh to the position that alternative models should be considered.

“The Senate Economics Committee as a whole seems to believe further consultation would deliver a better outcome,” Leigh told IRW. “Consultation should focus on enforcement and the role of all stakeholders in the proposed and alternative models.”

Vendor model would not ‘level playing field’

It’s now increasingly unlikely that the Bill will pass parliament at next sitting, opening the door to further consultation that would see the likes of eBay, Amazon, Etsy and Alibaba outline more concerns about the proposed vendor-hybrid model.

ebay, m-commerce, mobile, shopping, onlineUnder the current proposal, international marketplaces would be required to collect and remit GST from third party sales on their platforms, which is believed to be unworkable and ineffective by those opposed.

Low compliance rates, according to eBay, also raise concerns over whether the vendor-hybrid model can deliver outcomes in line with the spirit of the Bill. CEO Jooman Park has argued that the reform would create an incentive for customers to shop with the estimated 75 per cent of sellers not registered with the Australian Tax Office.

Further, eBay has threatened to block Australian consumers from international sellers if the Bill was passed.

UNSW tax expert Kathrin Bain agrees and said that compliance would even be difficult for large marketplaces, as they are not the actual suppliers of sold goods flowing into Australia.

“It still maintains the disadvantage for the Australian retailers and also disadvantages the overseas retailers that are complying,” she explained.

Australian Sporting Goods Association chief executive Shannon Walker described eBay’s threat as a “bluff”, and has joined other employer groups in opposing a delay, despite outlining several concerns with the legislation in his submission to the Senate.

Zimmerman also admits that the Bill isn’t perfect, but argued that the two-year review period after the passage of the legislation could provide an opportunity for further reform, adding that he believes compliance rates would be higher than the floated 25 per cent figure.

Logistical alternative

Amazon and other international marketplaces advocate a ‘logistics’ model (or transporter model), whereby domestic courier and logistics providers, such as Australia Post, would be responsible for collecting and remitting GST.

Modelling commissioned by Amazon and carried out by KPMG has predicted a 70 per cent compliance rate with a logistics based model, which would net a further $400 million in tax revenue over the vendor hybrid model.

However, Australia Post has warned that it would be unable to fulfil its obligations under a logistics model without incurring significant cost and slowing down its e-commerce operations, which would leave it at a competitive disadvantage in the sector.

Employer groups including the ASGA and ARA support the current Bill and the vendor-hybrid model; saying that if markets do not process payments, it will be impractical to capture many small scale vendors in the system.

The ARA also submitted documentation to the hearing, which shows that Amazon has the capacity to automatically calculate GST on sales over $1,000.

Amazon did not respond to a request for comment on their ability to calculate GST on sales under $1,000, but Treasury officials have stated that a range between 25-30 per cent compliance would be expected in the first three years of any implemented legislation, before gradually increasing as the program matured.

“Our modelling [shows] a substantially higher compliance rate a few years beyond the forward estimates,” Robert Ewing, principal adviser in the tax analysis division at The Treasury, told a Senate committee.

There are also further concerns, as Bain and the ASGA have outlined, over how the ATO would determine which retailers met the $75,000 turnover threshold for GST registration, and how non-compliance from smaller players could be enforced.

Enforcement may still require stopping parcels at the border anyway, which has lent further credence to Amazon’s belief that the current system dealing with high-value imports should also include low-value imports.

Nevertheless, with bipartisan support now building for a delay, further argument over the nature of any proposed system could ensue up until the 2018 budget. It was also floated by the Senate committee that an upcoming set of OECD guidelines on this issue could be the basis of a case for waiting on international guidance before moving further.

Within that time, the taxation disparity will increase, with KPMG’s figures showing that low value imports are growing between 10 and 16 per cent per year and now represent more than 27 million parcels per annum.

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