What do the GST changes for online shopping mean for consumers?

By Timothy Martino - November 30, 2017

Australians have grown used to having access to the world’s retailers, thanks to the boom in online shopping.

But the quick pick-and-click is about to become more expensive with the expansion of GST to even low-value online overseas purchases.

The Federal Government this year delayed the introduction of GST on what were previously exempt items bought from retailers overseas, but as of July the new rules will come into force and the Australian Tax Office is out selling the implications for consumers and business.

What are the changes?

The first point to consider is that the application of GST to goods bought overseas will now be far greater.

Under the present system, GST is payable on goods purchased from overseas with a few exceptions — most notably for ‘low-value’ goods.

This means GST has not normally been payable on importation of goods where the value is less than $1,000, so consumers can purchase books, clothes, shoes or other inexpensive goods online without paying the 10 per cent tax. 

This has been an ongoing source of frustration for Australian retailers, given local book, clothing and shoe retailers, among others, are not generally able to offer an equivalent exemption.

From 1 July, 2018, legislation to level the playing field, and raise additional revenue, will seek to rectify the situation.

But the proposed approach comes with some challenges, in part designed to combat the key objection to expanding GST on low-value international goods — the cost of administering the tax.

How will this work?

The job of collecting GST normally falls to the Australian Border Force, which ensures applicable goods are not released to their buyer until the GST has been paid.

That’s time consuming under the current system and would be almost prohibitively expensive under the new rules.

The internet shopping market is estimated to be worth more than $37 billion and while one in five Australians say they only buy from Australian suppliers, there are millions of annual transactions with offshore retailers.

In the past four years, air cargo consignments have increased by more than 170 per cent to more than 30 million, while parcels that arrive through the mail are reported to be as high as 170 million.  

To manage the questions of practicality and cost, the legislation comes with some important nuances.

Firstly, it is only intended that GST will be payable where the supply of the low value goods is made to Australian “consumers”.

In this case, we mean purchasers who would be unable to claim back all of the GST.

The term is intended to exclude those transactions involving low-value goods where the GST would in any case simply be claimed back, such as a business buying inexpensive computer equipment for business use online, rather than heading to a local supplier.

Secondly, the GST on low-value goods will not generally be payable by the importer to the Australian Border Force.

Instead, the ATO will collect the GST either from the overseas supplier, from a re-deliverer (such as the operator of an offshore mailbox) or from an electronic distribution platform (such as eBay).

This change has raised a number of questions, including how the ATO could enforce compliance when dealing with overseas suppliers who have no Australian presence.

After all, many small suppliers are not set up to collect tax for other jurisdictions, and would be disinclined to take this step.

The same reluctance is true for big retailers, with eBay and Amazon among those objecting to the expansion of GST collection in submissions to the Federal Government.

For now, though, the Productivity Commission (which reviewed the legislation) has concluded the new model “is the most feasible among the imperfect alternatives at this time”.

This paves the way for the introduction of the GST on low-value goods from 1 July 2018.


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