GST on low value goods

by Robert Deutsch CTA
At the time of writing, the Treasury Laws Amendment (GST Low
Value Goods) Bill of 2017 currently sits before federal parliament and is
likely to be passed at some stage soon.
The Tax Institute has made submissions on the Bill and I
attended and gave evidence at the Senate Economics Legislation Committee
hearing held on 21 April 2017.
At the hearing, I indicated that the Bill is intended to
have the admirable objective of levelling the playing field between local
bricks and mortar style retailers and e-traders who are essentially bringing
products from overseas to local consumers.
The quite legitimate gripe of the local bricks and mortar
retailers has been that there is an unfair competitive advantage in relation to
goods of value of less than $1,000 which are imported into the country where no
goods and services tax applies as compared to the provision of the same type of
product by local retailers where clearly GST is applicable.
The Tax Institute broadly agrees with the sentiment driving
the change but we have a number of problems with the way in which this is to be
implemented and this includes most particularly the following:

  1. The time frame is short, with a projected start
    date of 1 July 2017. Importers who need to gear up for this change will,
    rightly or wrongly, do nothing in advance of the change being legislated.
    Effectively, this means that they are being provided with a six-week window to
    put their systems in order.

    From the information which we have, it is almost certain that the
    implementation time will be at least six months and, in many instances, more
    likely to be 12 months.

    The Tax Institute supports a deferral of the start date to 1 January 2018.

    To suggest that the effected parties should have taken action earlier as the
    changes have been mooted for some time is somewhat unrealistic, as implementing
    such changes is expensive and time-consuming. No one wants to incur these costs
    without being certain as to the exact nature of the coming changes.

  2. With some exceptions, the broad structure of the
    legislation is to impose the tax on the vendor who is selling the product. In
    theory this is the correct outcome but the practical reality is that many of
    these vendors will have little or no presence in Australia and consequently
    have little or no real incentive to comply with the law. It is unlikely that
    anybody other than the larger offshore retailers who have a significant
    reputation to protect are likely to comply. This in its own way creates an unlevel
    playing field with complying offshore retailers and non-complying offshore
  3. One exception that I refer to above relates to
    what are called “electronic distribution platforms” (EDPs) which would cover
    organisations such as eBay and Amazon. In such cases, the amending Bill will
    ensure that, where a supply is made through such a platform in respect of an
    offshore supplier of low value goods, ultimately the effect will be that the
    GST liability will sit with the EDP (eg eBay or Amazon). In other words, the
    EDP itself will be liable for any unpaid GST even though it has never collected
    the face value of the underlying transaction.
Imagine a foreign vendor selling a product via eBay for $100
in circumstances where GST is not added to the transaction when it should have
been. This could arise, for example, if eBay in the given example incorrectly
assumes that the product in question is for whatever reason in the GST-free
category. eBay would expect a fee for its service and this is likely to be a
fraction of the overall consideration in respect of the underlying transaction.
Let’s assume that eBay collects $5.
On audit when the error is discovered, eBay will be
responsible for the payment of GST to the government of $9.10, being 1/11th of
$100. In other words, eBay is up for GST of $9.10 in circumstances where the
amount collected for the services it provided is $5. No wonder eBay is
threatening to close down all such operations in Australia if it is going to
face such an absurd potential outcome.
It has been suggested that the EDP should wear the cost of
collection and the liability but be compensated for doing so. In my view, this
is unlikely to be a realistic option once the costs of compensation and the
compensating party are identified. I can already hear the hissing.
Again, I repeat that The Tax Institute is supportive of the
underlying principle, but the manner and timing in which this is taking place
is simply unacceptable.
I am very sorry if this all sounds a little negative — it is
not intended to be but, as it stands, this looks to me like a rushed poor
solution to a real problem. The logistics model may need another look!
* Robert Deutsch is The
Tax Institute’s Senior Tax Counsel.


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