The GST on online purchases will apply to any goods sold after July 1st 2017. It’s a pretty wonky idea, and it’s not likely to work all that well. Updated: More detail is available… but it’s not looking any better.
Image: Michael Coghlan
The ABC reports on the move, which had been being pitched by Treasurer Joe Hockey for some time now, stating that the relevant state treasurers have all agreed in principle to the removal of the GST exemption, which currently applies to any purchase under $1,000.
The theory is that, in the words of Joe Hockey that “This will deliver competitive neutrality for Australian businesses, and ensure fair and equal treatment of goods and services”, but I’m not entirely convinced, to put it charitably.
There’s the obvious question of enforcement, because if an overseas business is relatively small or niche, they may well not know about the GST requirement at all.
Maybe that’s going to fall to the consumer, but it doesn’t take a genius to suggest that if I buy a $5 widget from Widgets Incorporated of Iowa(tm)* and the customs department has to hold it until I release 50c to them for the relevant tax portion that they’re going to spend more than 50c in enforcement, storage and ultimately delivery. Maybe that’s what Joe means by “competitive”, because in that scenario it would rather crush the viability of Australians to actually apply some competitive pressure in their shopping.
Now the detail is yet to emerge, so maybe there’s a clever and relatively transparent fix for all of that stuff. Maybe the big players — Netflix, Amazon et al — can be gently coerced into signing up for individual BAS accounts and collect GST at that level. Maybe. It’s a big maybe, though.
Still, I don’t think it’s a good deal for either consumers, who will pay more, or even the businesses that it’s meant to help. Yes, Dave’s Widgets of Wagga Wagga won’t have to compete with Widgets Incorporated of Iowa(tm) on a GST-free basis, but that’s not going to ensure “fair and equal treatment”, because that in and of itself is a fairy tale, and IT purchasing is a really clear and obvious case of where that applies.
To give a really recent example, this week Samsung announced the Galaxy Note 5’s release date and pricing for Australia, but only for one model; the 32GB variant.
Elsewhere on the planet, a 64GB version is available, and that’s important for any Galaxy Note 5 buyer, because it’s a unit with sealed storage, so you can’t add any more to it once you’ve bought it. Samsung Australia’s official word — I did ask them — was that it was due to “consumer choice”, but let’s just say that I have my doubts about that. In any case, I’ve little doubt that as long as it’s frequency/band compatible, we’ll see the direct importing crowd fill that gap, probably at a lower price point than the $1099 the 32GB Note 5 attracts here. Based on previous phones at around that price point, it could sell for anywhere between $600-$800, and that’s including the margin the direct importer builds into the product.
Adding ten percent to that lower price will eliminate a small amount of that difference, but it won’t wipe it out.
It won’t even come close, and that’s because those businesses work around the fact that companies, not governments, set regional pricing as high as a given market will bear. It’s a simple matter of buy cheap in one market, sell higher in another that keeps the direct importers in (all perfectly legal) business.
So the practical upshot? The government might collect GST, though I’m willing to bet a lot slips through the cracks and the cost of enforcement will outweigh the revenue in a pretty serious way, but at the same time it won’t deliver much in the way of a straight up business benefit locally, because pricing differences are way more complex than whether or not a small universal tax applies or not. We’ll have to wait and see how the implementation is meant to work, but at a large scale level, it’s an idea that sounds all kinds of protectionist good (which is odd, given I thought the Liberals were all about small government and low taxes, but whatever) but seems doomed to fail and maybe even hurt those businesses that rely on the current sub-$1000 setup.
Update: It gets even better, if by “better” you mean “worse”.
The SMH reports that:
“…foreign businesses with a turnover of less than $75,000 will be exempt from the requirement to collect it in the same way as are small Australian businesses”
Which on the surface sounds reasonable — the same rules for the same types of businesses — but the moment you think about it it ends up being a complete nonsense. “Please, foreign-business-over-whom-we-have-no-compulsion, do you turn over more than $75,000 per year?”
So it’s over to the big guys, which is apparently the point. Again, as per the SMH:
“Big businesses such as Amazon, Apple and Netflix will be asked to collect the tax. Mr Hockey said he expected most to agree.”
“We are going to have taxation officials travel around the world visiting these companies asking them to register for GST purposes” — Joe Hockey
“Victorian Treasurer Tim Pallas said the process would take years to bed down. ‘Mr Hockey told us about 50 internet sales companies make up the vast majority of internet sales. Apparently many of them are prepared to do it, but it will take a long time to get this right, if ever'”
Right, so even leaving aside issues of whether or not one trusts Joe Hockey or not, it’s about targeting the big companies online. Who could change, at which point you’ve got to do the whole process again.
Also, spending money to send taxation officials overseas to talk to big businesses. If only someone had invented some kind of international communications network that could make that cheaper and faster without actually having to leave the country — but obviously, that’s science fiction.
Snark of that type aside, the big Internet players probably do make up the bulk of goods ordered by Australians, so there’s margin there. You know what else these big players are incredibly good at?
Legal tax avoidance. Make them register for GST, and they’re also eligible for GST exemptions and cost recoveries. Anyone want to take bets that Apple, Amazon, Netflix, Valve et al will be setting their accountants onto Australian tax law to work out ways to charge GST recovery to the Australian taxpayer? Given the immense complexity of Australian tax law, I don’t think it’s a leap to say that they’ll seek to make as much as they can (and they would), while of course passing the costs onto the consumers. They win, we lose.
Ah, but it gets even better, while answering one of my questions above:
“Mr Hockey said he had no idea of how much revenue the extra tax would bring, but it was certain to exceed the cost of collection because Australian officials would not be asked to open parcels to check whether tax had been paid.”
Wow.
That’s just a stunning bit of ideological politics with no real aim, then, right? The treasurer doesn’t know how much revenue it will bring (there is modelling, referred to later in the SMH piece, to be fair, but Hockey doesn’t want to be held to that, clearly) and they’re not even going to check packages.
Well, that will keep implementation costs down. As well as ensure that an astonishing number of parcels get sent to Australia labelled as low cost gifts.
There is, in essence, nothing particularly wrong with an import tax, and there is, perhaps, an argument for lowering the threshold in some way. But what’s being done here is, it seems, just a matter of lip service to a few big Australian businesses at the cost of absolutely everybody else.
*Not a real business. As far as I know.