Government to expand GST scope

Anthony Caruana
10 April, 2015
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Thus far, savvy technology buyers have been able to bypass paying GST on certain items if they self import. Items and services that cost less than $1000 have been GST exempt. But that seems set to change in the forthcoming federal budget.

Dubbed the “Netflix tax” – the GST is expected to now include services Australians order from overseas providers. A discussion paper [PDF link] released by the government throws in the potential for lowering the $1000 threshold for GST payments when ordering items online from overseas vendors.

At one level, this does seem to sound fair. If local vendors have to charge GST and pass that to customers but overseas providers don’t have to then local vendors are at a disadvantage. One element of what’s being missed in the media narrative is that this is less of a concern for business customers.

When businesses buy items that include GST, they claim back that cost through the monthly or quarterly BAS process. So the inclusion or exclusion of GST for businesses is not a significant cost issue.

However, it is an issue for consumer markets – one that critics of the current system like Gerry Harvey of Harvey Norman has long argued about.

With revenues from the mining boom now faltering, the government is looking for ways to boost its revenue. After last year’s disastrous budget – which has not yet been passed – the government is looking for revenue opportunities to boost its coffers. Never mind that the Productivity Commission found in 2011 that changes to the GST would result in revenue of $600M at a cost of $2B.

It’s possible that the government has found a means to make the collection of this revenue more cost effective. There’s little doubt that online shopping has grown substantially since that Productivity Commission report s perhaps the revenue side of the equation is tipping the balance back.

One detrimental effect may be overseas retailers stop servicing Australian clients because of the increased complexity of charging GST resulting in reduced market competition.

Another element of the government’s tax system changes is to follow in the footsteps of the UK government and charge a new tax on businesses that use revenue transfer processes to send money from one jurisdiction to another in order to reduce their tax.

Companies would be taxed at a flat rate on profits generated within the country regardless of where those profits are shifted.

For Apple fans, it’s hard to know what the final outcome will be. Buying accessories from overseas retailers in order to reduce costs is likely to get a little more expensive. Our experience has been the price differential between Australian and overseas retailers has been far more than the 10% GST charged locally.

The tax on local profits is likely to have more of an effect in our view. At best it will be added into products and services resulting in increased prices. At worst, it’s possible some companies will see Australia as not being worth the effort and pull out of the local market.

One Comment

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  1. Jamie says:

    Same thing is going to happen on this side of the Tasman in NZ very soon too as apparently it’s not fair to import an item for 25-60% of the price it is locally.

    Perhaps local businesses could try and stop gouging the consumer and charge less…..

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