Online Shopping Tax: Yes or No?

19 January 2015

A new report by the Institute of Public Affairs (No to the GST attack: Why the exemption for online purchases must stay), argues that putting a GST on low-value imports will not help Australian retailing, and will only succeed in making Australians pay more when shopping online.

woman online shopping

What’s the proposal?

Australia has a goods and services tax (GST) of 10% on most goods and services sold or consumed in Australia.  There are a few exemptions to the GST, including education and fresh food – although that may change over the next few years.

Another current exemption is on items purchased overseas for a total value of less than $1,000. This exemption has been very contentious and various retail groups have called for the GST to apply to all items purchased from overseas.

Who wants GST to apply to low-value overseas purchases?

Many retailers want the GST to apply to low-value overseas purchases. The Australian National Retailers’ Association, for example, have called for a level playing field, with ANRA CEO Margy Osmond saying: “This quirk in the GST mechanism means revenue that should be finding its way to State coffers for much needed community services, is subsidising foreign businesses. Australians already pay GST on goods purchased locally online or in-store. Fixing this $1,000) loophole recognises how much retail is changing.”

On the other hand…

According to the Institute of Public Affairs (IPA), there are several important drivers of high retail costs in Australia, including a highly regulated labour market, severe land use restrictions, and trading hour conditions, and putting a GST on lower-value overseas purchases would do little to stem our collective enthusiasm for buying online from overseas retailers.

To quote the IPA report: “Other things being equal, imposing the GST on imported items valued at $1,000 or less may encourage some consumers to switch from overseas to domestic shopping options, but a comparison of selective popular sales items would suggest that a GST on low-value imports would, by no means, dissipate the price advantages presently enjoyed by overseas retailers.

Would it boost government revenue?

Helping to level the playing field for domestic retailers is one thing, but the other important consideration is whether imposing a 10% GST on low-value overseas purchases would actually boost the government coffers once the cost of collecting the revenue was taken into account.

The answer to that one? The jury is still out. In 2011 the Productivity Commission published a report noting that there were strong in principle grounds for the Low Value Threshold to be lowered significantly, but that it shouldn’t happen until it was cost effective to do so. The Productivity Commission report noted that at that time, there were around 58 million international parcels under the $1000 threshold arriving in Australia each year. Based on then-available data, the Commission estimated that with current parcel volumes and processing costs, removal of the LVT would generate revenue of around $600 million at a cost of well over $2 billion borne by businesses consumers and government. It doesn’t really sound like a great deal for anyone…

Share this article