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Exporters Urge Int'l Reform To Simplify VAT Compliance

by Ulrika Lomas,, Brussels

20 September 2019

The International Chamber of Commerce has warned that micro-, small-, and medium-sized businesses' growth prospects are being stymied by complex indirect tax regimes. It has released an issues brief that is intended to contribute towards international reform talks being led by the World Trade Organization.

The issues brief – the product of extensive consultation with businesses across a range of sectors participating in or affected by the digital economy – will form part of a series of briefs by the ICC to assist WTO member states in their plurilateral negotiations in Geneva.

The brief, Taxation of Physical Goods in the Context of E-commerce: Avoiding Non-tariff Barriers through Simple and Consistent Design, highlights a growing concern for micro-, small- and medium-sized enterprisess (MSMEs) accompanying the impressive growth in the cross-border sale of physical goods purchased online: the propensity for Goods and Services Tax (GST) or Value Added Tax (VAT) regimes to constitute non-tariff barriers to trade unless they are designed in a simple and consistent way.

The brief sets out five key recommendations for WTO Members to ensure that their GST/VAT regimes do not hamper e-commerce growth. They are:

  • Minimize discrimination between domestic and non-domestic businesses in registration requirements and ensure tax systems are technology-neutral in application;
  • Allow suppliers, where relevant, to collect and remit taxes away from the border;
  • Maintain or establish appropriate de minimis thresholds, allowing customs agencies to focus on safety and security rather than on domestic tax collection;
  • Ensure that registration and tax payment processes are simple, consistent, and non-discriminatory;
  • Do not require a place of business or fiscal representative in the country of destination in order to supply goods.

The brief also explores existing good practice, noting recent developments in Australia.

Commenting on Australia's non-resident GST model, ICC Secretary-General John Denton said:

"Early experience with the Australian model suggests that compliance is high, and it could be an efficient and effective way of taxing physical goods sold via digital platforms. I invite WTO Members participating in the Joint Statement Initiative to study the Australian model."

In July 2019, the Australian Taxation Office (ATO) reported that it had collected over AUD250m (USD174.9m) since the GST was introduced on low-value goods, outstripping forecasts by AUD180m.

The new regime entered into force on July 1, 2018. The legislation requires overseas vendors, electronic distribution platforms, and goods forwarders with an Australian turnover of AUD75,000 or more to register for, collect, and remit GST for low-value goods supplied to consumers in Australia. Under the previous system, low-value goods – namely, goods with a customs value of AUD1,000 or less – were not generally subject to GST when imported directly into Australia by the recipient.

The ATO said that, since the changes were introduced, over 1,000 overseas businesses have registered for GST. This group includes all the known major suppliers and international platforms. It also includes platforms that are collecting GST when these goods are sold through them, reducing the number of individual businesses that need to register.

The ICC brief further recognizes that, with the rise of digitally intermediated goods transactions, national governments are naturally concerned with the protection of fiscal revenue. It underscores, however, that a balance needs to be struck between tax collection and ensuring that collection processes are neither overly complex nor discriminatory as to create non-tariff barriers to trade.

Noting progress made to date, Denton said: "A lot of useful work had already been done in this area at the OECD, and it is important that member states bear this in mind in developing principles and disciplines for non-discriminatory and frictionless behind the border measures. Globally consistent indirect tax regimes are essential for MSMEs to unlock the opportunities of digital trade."

TAGS: compliance | tax | business | value added tax (VAT) | commerce | Australia | e-commerce | legislation | trade | Tax

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