Lower GST threshold could cost more than it makes

Mozo

Friday 24 January 2014

A productivity report has revealed that the cost of implementing a lower GST threshold on goods purchased from international sources online will well outweigh the benefit.

Lower GST threshold could cost more than it makes

In November last year Mozo reported that the Abbott government was being urged to reduce the GST-free threshold for items bought online from overseas sources from $1000 to $20. According to Victorian Premier John Brumby, a tax on goods purchased online from overseas would be "money for jam" topping up the government coffers that could then be spent on our health and education system. However it would appear this is not actually the case.

A report by the productivity commission has revealed that removal of the low value threshold would generate revenue of around $600 million at a cost of well over $2 billion, born by consumers and the government.

The commission said that the costs of implementing a lower GST threshold were related to needing additional Customs staff to manually inspect all parcels and additional Australia Post staff to contact and assist customers in filling out import declarations, as well as more storage space for parcels.

Further investigation by the Low Value Parcel processing taskforce found in July 2012 that it was not cost effective to collect GST on gods valued at less than $500.

The National Retail Association commissioned a report prepared by accounting firm Earnst and Young which showed that if GST was levied on all overseas goods, the states could earn GST revenue of $1 billion in 2015. However more recent data from National Australia Bank points to GST revenue of only $309 million a year.

A driving force behind the push for the GST are Australian retailers who are struggling to compete with international retailers.  However the productivity commission has also found that the high threshold was "not the main factor affecting the international competitiveness of the sector."

"This is particularly so due to the current large difference (in excess of the 10-20 per cent accounted for by the GST and duty) between domestic and overseas retail prices for many goods purchased online," it said.

There is little to prevent the government from lowering the $1,000 GST threshold for online purchases to emulate similar thresholds in other countries, apart from the cost of collecting the GST.

The question can be whether customs and border system can be adapted as it has been in the UK and Canada so that the tax will bring in more revenue than it costs. In the meanwhile there's no doubt that shoppers will be making the most of it while the Australian dollar is strong.


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