Online shoppers are safe from the dreaded ‘internet tax’ – for the next few months, at least. After a discussion in Canberra on Wednesday, Federal Treasurer Joe Hockey and Treasurers from the states and territories have decided to hold off on making a decision on changes to the GST-free threshold.
The current GST-free threshold means that consumers buying online are exempt from paying GST on items under $1000. Domestic retailers and the states and territories feel that they are losing out because of this.
In the case of domestic retailers, they feel that consumers are shopping online to avoid GST. They feel they cannot compete with overseas retailers’ prices, so they are losing potential revenue from domestic consumers.
The states and territories, on the other hand, collect GST revenue, so they feel they are missing out on potential revenue from items arriving into the country, under that GST-free threshold.
To combat this, the National Retail Association is calling for GST to be charged on all overseas purchases worth more than $20.
NRA Chief Executive Trevor Evans said that the current GST-free threshold was created before the current boom in online shopping.
“The plain fact is that GST was always supposed to apply to the types of consumer products that people are now regularly purchasing online,” he said.
Considering the facts
New South Wales Treasurer Mike Baird said a business case for lowering the GST-free threshold was being prepared.
“There is an agreement that we will come together and that the states and Federal Government will work through every line and assumption of that business case,” he said.
“We will ensure that whatever model is considered it is done in the most cost-effective way and at the end of March the treasurers will come back together to make a decision in terms of going forward.”
Cost of collection more than revenue raised
Retail groups pushing for change say lowering the GST-free threshold will provide the government with an additional $1 billion in GST revenue each year.
However, the Productivity Commission has estimated that collecting another $600 million in GST from overseas online sales would cost the government around $2 billion to implement.
Questions have also been raised by consumer groups as to whether the cost of collecting any additional GST revenue would surpass the actual revenue collected.
The cost of setting up the system would indeed be substantial, especially if the threshold is reduced as low as $20, as so many more parcels would have to be checked. Other options to set the threshold at $200, $600 or $800 will also be discussed.
Queensland Treasurer Tim Nicholls said the proposal “does show in the first year or two that the costs of collection are higher than the revenue generated, but then the trend gets much more positive the longer you go.”
“Online retail sales are growing at 15% per annum. It is a growing and significant distribution channel for sales at the moment in terms of the GST system.”
Labor says no to GST change
Lowering the GST-free threshold wasn’t the only suggestion made to raise GST revenue. There was also talk of raising the rate of GST, or extended it to a broader range of goods and services.
Not all parties were amenable to that suggestion – namely the Labor states of Tasmania and South Australia, with Tasmanian Labor Premier Lara Giddings and South Australian Premier and Treasurer Jay Weatherill saying they would oppose any attempt to increase or broaden GST.
“The Liberal States want to see change around the GST, the Labor States do not,” Giddings said. “It is because of the fact that the Labor States, SA and Tasmania, the smaller states, are the ones that would be left worse off.”
Not a popularity contest
NSW Treasurer Mike Baird said he didn’t expect any changes to be popular. “I don’t expect to win a popularity contest on the back of this, [but] it is fair for our local retailers,” he said. “The tax system needs to be brought into the modern age and we’re prepared to argue for it.”
Federal Treasurer Joe Hockey declined to commit to the change in the system, as this would be in breach of his election promise not to interfere with the GST.
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