Australian e-commerce and GST | Update
Productivity Commission releases final report on Australian retail industry
9 December 2011: Our January 2011 publication ‘Australian e-commerce and GST’ provided context to the debate about whether Australia’s $1,000 low value importation threshold (LVT) should be lowered, by outlining the operation of the LVT, highlighting the operation of similar mechanisms in other countries and then suggesting steps that Australian retailers should be considering.
Since then, the Productivity Commission has completed its inquiry into the economic structure and performance of the Australian retail industry and its final report has been published. The findings of the Commission in relation to the LVT include the following:
- The current level of the LVT is not the main factor affecting the international competitiveness of Australian retailers. Several factors appear to be driving the growth of online retailing in general and affecting the relative competitiveness of domestic and overseas retailers
- A compliance campaign conducted by Australian Customs in early 2011 to identify whether the LVT is being abused or exploited by overseas retailers indicated that the level of non-compliance is low
- Because GST is a broad based consumption tax, the LVT should, in principle, be reduced to a low level to ensure tax neutrality between sales by Australian retailers and overseas retailers. The LVT should only be lowered however, if it is cost effective to do so
- Approximately 58 million international parcels now arrive in Australia below the $1,000 LVT (via courier and mail), with most valued under $100
- The existing parcel processing and revenue collection arrangements at Australia’s borders are inefficient and need to be improved, regardless of whether the LVT is changed
- Under the existing parcel processing arrangements, lowering or removing the LVT would not be cost-effective. The Commission estimates that the additional $496 million in revenue that would be collected if the LVT were to be lowered to $100 would come at an overall cost to businesses, consumers and government of $1.2 billion. Removing the LVT altogether, generating revenue of about $600 million, would come at a cost of in excess of $2 billion
- Any move to lower the level of LVT would have no impact on imports of services and intangibles (e.g. downloads of music, games and software), currently estimated to involve foregone GST revenue of about $1 billion.
In light of its findings, the Commission has recommended that:
- The Government should not lower the LVT unless it can be demonstrated that it is cost effective to do so
- The Government should establish a taskforce to investigate new approaches to the processing of low value imported parcels, particularly those in the international mail stream, and to recommend a new process which would deliver significant improvements and efficiencies in handling. The new process would need to minimise the costs of processing and delivery delays, streamline customs duty assessment, involve ‘user pays’, and not compromise border protection. Once an improved international parcels process has been designed, the Government should reassess the extent to which the LVT could be lowered while still remaining cost-effective.
The Government responded to the Commission’s recommendations on 9 December 2011, indicating that it will establish a ‘Low Value Parcel Processing Taskforce’ and will reassess the appropriateness of the LVT after the Taskforce’s report is received.
Our publication, ‘Australian e-commerce and GST’ is available to download here.