Background

With the boom of global online shopping in recent years, the Australian government has recently implemented new legislation to begin taxing low value goods from overseas sales. Any vendor that makes more than $75,000 AUD worth of sales in a year will have to comply by collecting GST for low cost goods upon purchase to then remit to the Australian government.

This has the supposed advantages of increased GST revenue, more consistent taxing on household consumption and a step towards “levelling the playing field” between domestic and overseas retailers. However, these changes might cause more harm than good to the Australian consumer and economy.

Issues

There are many potential issues with the newly implemented system which may negatively impact consumers.

In some circumstances, purchases made from overseas might be vulnerable to being taxed twice. When purchasing low value goods, these goods could be classified as a taxable supply and will be taxed upon purchase. However, if a combined shipment of low value goods exceeds $1000 in value then they may also be deemed as taxable importation, and thus could be taxed again at customs. The only way to avoid this would be vendors providing notice to customs so that the relevant taxation rules can be “switched off”. If this is not done properly then consumers will have to rely on suppliers providing a refund, as GST taken upon importation cannot be refunded.

A supposed benefit of these changes is the increased equality between domestic and overseas suppliers when it comes to tax. Previously, only overseas shipments valued over $1000 were taxed, which made shopping overseas an attractive option for Australian shoppers. While the new increase in prices may drive more consumers to buy from Australian retailers, in the long term it is likely insufficient to combat the larger range and lower prices seen in international stores. In a lot of instances, it is still preferable and cost effective to pay the new tax and buy from overseas than it is to seek a local supplier. Backlash over the new system can already be seen from major suppliers such as Amazon, who announced they will no longer ship from the US site directly to Australian customers. Aussie shoppers can now only access the Australian Amazon website, which boasts considerably less variety than it’s US counterpart.

“Treasurer Scott Morrison has designed the new laws in order to level the playing field for Australian retailers as well as to raise revenue. This is a double benefit to the economy through GST and pushing consumers to Australian retailers.

While the target of pushing consumers back to Australian retailers has had the desired initial impact, Australian consumers are still demanding choice and lower costs consumables. It won’t be long before someone else comes and again disrupts the retail market just like Amazon has done by coming to Australia. We have seen this with Netflix, Spotify and Airbnb. The other issue I believe we will find is the laws will be difficult to enforce, and anecdotal evidence already is that even large overseas companies sending goods to Australia are not ready for this change. It is difficult to see what jurisdiction the ATO has to prosecute overseas companies for failing to collect and remit GST. It may come back to trying to stop goods at the border from anyone not meeting their obligation. Either way, through disruption or the inability to enforce, I believe the desired impact of the new legislation will become obsolete.”

Ricky Wilson
Director- Benchmarc Financial Group

Previously low value goods went untaxed in overseas purchases as the revenue produced by such taxes were outweighed by the cost of enforcement. Since online shopping has become such a large market, the situation has changed, and the government estimates that the new taxes will generate $300 million in the first 3 years. However, since the introduction of the new system this estimate might start to drop rapidly if other major suppliers follow Amazons example and stop shipping internationally. If many more follow suit, then it won’t take long for the operation to become unprofitable, leaving little advantage to a low value goods tax.

Outcomes

For anyone who uses imported low value goods in their homes or businesses, it is important to understand the potential effect these new legislative provisions might have on you. If you import large quantities of low value goods like stationary and other office equipment that totals to over $1000 in value, without proper precaution you might end up paying GST twice on these orders. Ensuring that you use a reputable supplier that complies with the new rules for avoiding double taxation is the only way to avoid this. Alternatively, if you purchase such goods from an importer then you may see a hike in prices.

While these reforms are very new, there are many other countries that have announced similar reforms, and it will be interesting to see how these policies develop, how they are implemented and who will win the stalemate between major retailers like Amazon and governments.

Conclusion

Ultimately these reforms may not have the intended benefit on the Australian economy as originally hoped, and Australian retailers may see very little increase in online business. The Australian consumer is most likely to feel the negative effects of these changes, with increased costs and decreased choices. Care also needs to be taken in choosing your retailer to ensure you don’t end up being taxed twice.