Australian e-commerce and GST | Update
New approach proposed for processing low value parcels: how low might the low value threshold go?
- The Low Value Parcel Processing Taskforce (LVPP Taskforce) has proposed a more efficient approach for handling and administering imports of low value goods
- Streamlining the current processes will be complex and require significant innovation and change and it is estimated that this will take between two and four years to achieve
- Modelling undertaken by the Taskforce suggest that the proposed new parcel processing approach might make it cost effective for the Government to lower the low value importation threshold (LVT) to as low as $100
- Given the timeframe retailers should clearly not wait to see whether the LVT is lowered when considering how to respond to competition from off-shore online suppliers.
There has been considerable debate about whether the current $1,000 LVT should be lowered in order to level the GST and customs duty playing field for Australian retailers competing with overseas retailers who sell goods to Australian customers primarily through online transactions (the LVT currently results in GST and customs duty not being charged on imports with a value below $1,000). Our 2011 publication ‘Australian e-commerce and GST’ provides context to the debate by outlining the operation of the LVT, highlighting the operation of similar mechanisms in other countries and, most importantly, suggesting steps that Australian retailers should be considering.
The LVPP Taskforce was established to investigate options to improve the efficiency of processing low value imported parcels, following on from the Productivity Commission’s recommendation that this investigation occur before the Government makes any decision about whether to lower the LVT (in the November 2011 report ‘Economic Structure and Performance of the Australian Retail Industry’).
Proposed new processing approach
On 6 September 2012, the Government released the Taskforce’s final report. The Taskforce’s proposed new approach for handling and administering low value goods, including revenue collection, has the following core elements:
- Using pre-arrival electronic data to enable pre-arrival risk assessment in the international mail environment
- Establishing separate low value thresholds for GST and customs duty, applying consistently across import streams (i.e. international mail and express carrier/freight forwarder cargo)
- Introducing a simplified basis to assess GST at the border to enable streamlined automated assessments, applying consistently across import streams.
- Using pre-arrival data wherever possible to facilitate rapid assessment of GST liability
- Establishing manual processes in the international mail environment to identify goods and capture data for assessing revenue where electronic pre-arrival data is not available
- Permitting Australia Post, express carriers and other freight forwarders, once the goods are cleared by Customs and Border Protection (CBP) and DAFF Biosecurity for community protection and biosecurity risk, to remove goods from licensed depots and gateways, and manage their further delivery. CPB would not require GST revenue to be paid prior to this clearance as freight forwarders and express carriers and Australia Post would be responsible for collecting and remitting the revenue liability
- Allowing Australia Post, express carriers and other freight forwarders to charge a handling fee for the costs of collecting any GST revenue.
The reform solution proposed is complex and, if implemented by the Government, will involve border and other government agencies, Australia Post, express carriers/freight forwarders and other stakeholders. It will require changes to legislation, administrative processes, handling and management processes and information systems, and new infrastructure.
Just as digital developments and innovations have played a major role in the growth in volume of low value goods purchased from off-shore suppliers, so too are they an important part of the Taskforce’s proposed reform of the parcel processing arrangements. The proposal relies heavily on harnessing the innovations that technological advances have, or will soon, make possible to address the limitations of the current arrangements and make it feasible and cost effective to collect GST and customs duty on an increased proportion of low value parcels.
The Government’s response to the report has yet to be formulated, so it in unknown whether the Taskforce’s proposed parcel processing reform will be implemented and whether the LVT will be lowered. Regardless of whether these things are likely to happen, there is little doubt that Australian retailers will continue to face substantial competition from suppliers transacting online and supplying goods from off-shore. In this environment, Australian retailers should not be taking a ‘wait and see’ approach, but instead should be considering how they could perhaps operate more competitively (see, for example, our publication ‘Australian e-commerce and GST’).
More generally, the potential size and timing of the disruptive effect of digital innovation on the retail sector is set out in Deloitte’s paper ‘Digital disruption: Short fuse, big bang?’ (along with the anticipated impact for many other sectors and for government). The paper emphasises the need for all businesses to acknowledge and address the disruptive effects of digital innovation, both positive and harmful, and provides a structured framework to help guide thinking and strategy development.
To discuss these issues further, please contact one of our Indirect Tax specialists.