Report Examines GST Exemption On Australian Imports

by Mary Swire, Tax-News.com, Hong Kong

05 August 2011

The Australian Productivity Commission’s draft report on the structure and performance of the country's retail industry has just been published, and examines the implications of globalization for the retail industry and the appropriateness of current policy settings, including the current exemption from GST and duty for imports valued below AUD1,000 (USD1,046).

Australian retailers consider the low value threshold (LVT) of AUD1,000 gives foreign online retailers a competitive advantage. However, for a number of reasons, the Commission considers that this is not the main factor affecting the international competitiveness of Australian retailers.

The Commission says that in principle, as the GST is a broad-based consumption tax, the LVT should be reduced to a low level to ensure tax neutrality. However, the principle of efficient collection also applies in taxation, it says, and in general, where the costs of collecting a tax exceed the benefits of the revenue, that tax should not be collected. Where the recipient of a parcel is a business registered for GST, the LVT has little effect on GST revenue since an input credit will be claimed.

Approximately 55m international parcels arrive in Australia under the AUD1,000 threshold. While data is limited, the Commission estimates that with current processes, without the low value threshold, about AUD578m of revenue would be collected and over AUD2bn of collection costs would be borne by businesses, consumers and government. It says that these costs are a “deadweight loss on the community”.

The Commission says that countries with much lower thresholds have put more effort into streamlining revenue collection, including improving government processes, and the collection of taxes at point of sale by some foreign online retailers. However, there is very limited published material describing the policy framework used in setting their thresholds, and little about assessment of the costs and benefits of different threshold levels.

The draft document says that the government should establish a task force to investigate new approaches to processing international mail and express carrier parcels which will:

• Collect more revenue than the total costs of collecting that revenue;
• Collect taxes efficiently and pass on the collection costs to the end consumer;
• Not be a barrier to trade, or protect domestic industry from global competition.

The Productivity Commision says that the costs and benefits of implementing a new process should be assessed, and that the LVT should only be lowered to a level which still remains cost effective.

Spokesperson for the Fair Imports Alliance Brad Kitschke says: “The recommendation by the PC that there are in principle grounds for the threshold to be lowered is great news for retail. It backs up what we have been saying all along. We’re not surprised Customs has come under fire for its inefficiency. However, retailers shouldn’t be punished because the bureaucracy is inefficient. We need speedy action."

“Retailers are embracing online retail and more and more Australian retailers are engaging in a multi-channel approach. The PC’s draft report has made it clear that inefficient parcel processing through Customs must be improved as it is the sticking point to allow for the low value importation threshold to be changed. This must happen as soon as possible.”

“There is a serious case for a reduction in tariffs that would ensure goods are able to be imported in to Australia without the burden and impost of outdated and protectionist measures. This can only lead to cheaper prices for consumers,” Kitschke said.

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