GST on low–value imports held to account

Many of those in industry will remember the controversy associated with the introduction of Goods and Services Tax (GST) on “low-value import transactions” (LVT) on consignments three years ago.

Previously there was no customs duty or GST payable on LVT, which was a real benefit for those buying goods in a consignment of $1,000 or less (originally $250), many of which were purchased through e-commerce. Another benefit was that such imports could be reported by Self–Assessed Clearance Declarations (SACs), which are less prescriptive than Full Import Declarations. Those reported through SAC did not attract the Import Processing Charge (IPC) and could be completed and cleared by any party, not requiring the involvement of a licensed customs broker (LCB). Simpler in principle than in practice, the concept created a constellation of compliance issues, such as what was legally a “consignment” that would fall below the threshold as well as the outright abuse of the concept by parties deliberately declaring goods below the threshold which they knew to be above the threshold. There were also reported incidents of parties trying to import products without securing necessary permits, which were still required under a SAC.

In more recent times, as the use of SACs increased in line with e-commerce, there was significant political pressure imposed on the Government, mainly from Australian retailers and the representatives of their employees. They claimed that the absence of GST on LVT provided an unfair advantage for the overseas vendors who did not pay GST on sales, did not pay any rent on their premises and did not employ employees at the same rate and in the same manner as local retailers. After many years of pressure and the attraction of more revenue, the Federal Government raised a proposal for GST to be paid on SACs. However, the novel approach was for the GST to be collected on parties outside of the jurisdiction, such as the “Electronic Distribution Platform” (or the e-commerce site) (EDP) through which the sale was made overseas and the “re–deliverers” of the goods (those who acted as overseas agent for the Australian purchaser who could not buy the goods directly from the overseas vendor) or “suppliers” of the goods. The GST was not payable by those parties for all such sales but where GST turnover of A$75,000 was reached in a 12 month period. Those parties reaching the thresholds would be required to register for GST and remit the GST to the ATO.

The proposal was not met with unanimous acclamation other than those in the Australian retail sector who supported the proposal. Those EDPs and others who could have been liable for registration, collection, and remitting the GST (such as express carriers, Australia Post, and credit card providers) raised loud objections. It was undoubtedly a novel proposal that attracted significant attention here and overseas where the EDPs were located. Many also feared that the EDPs and other affected parties would not register for GST and the Australian Government would not be able to enforce the measures. Compliance was raised as a problematic issue for both Government and industry, including reporting through the SACs. The response to the proposed legislation was for extensive consultation, including Parliamentary Inquiries and a review by the Productivity Commission (Commission). The final report and recommendations of the Commission (to be found here) included a finding that the Commission saw no better option than what was proposed in the preliminary legislation, which should be subject to review within five years of implementation or earlier if compliance was found to be inadequate.

Consequently, after further Parliamentary consideration, the proposal went ahead as initially proposed with a commencement date of 1 July 2018. A summary of the commencement is found in Australian Customs Notice 2018/13 here. The implementation seemed to proceed without the long list of adverse consequences which had been predicted. Reports suggested that the ATO recovered far more GST from the new measures than had been anticipated.

In line with the recommendation of the Commission, on 5 July 2021, the Federal Government announced that the Board of Taxation (Board) would undertake a review (Review) into the imposition of GST on LVTs. The Board was tasked to assess the regime’s effectiveness and provide advice regarding its ongoing operation. Its terms of reference are set out here along with a Consultation Guide supplied by the Board. The Board has announced a series of virtual roundtable consultation sessions and invited submissions to LVIG@taxboard.gov.au by 22 September 2021 and a report to be delivered by the Board to the Government by 17 September 2021. The Review will be observed here and overseas, especially in jurisdictions that have already imposed such measures, such as New Zealand and the European Union and other jurisdictions considering such measures.

While the measures seem to have been implemented without the anticipated chaos, related issues may be considered again, including the following:

• Whether customs duty will also be imposed on LVT (which would be contrary to overseas practices).
• Whether there are forms of “EDP” that are not complying with the intent of the legislation and whether there should be changes to the definition of the entities subject to the measures to include more entities.
• Whether such LVTs should also be subject to payment of the IPC as similar risk profiles need to be undertaken on SACs as on other import declarations.
• Whether the massive increase in e-commerce business associated with the global COVID–19 pandemic necessitates changes in the regime to facilitate transactions or requires a change to the reporting and collection threshold.

We would encourage interested parties to consider and engage with the Review. It is not often that we have the opportunity to have input into such regulation and no doubt the Board and the Government will notice those operating within the regime.

For advice on all aspects of Australian and international trade and e-commerce, please contact our Customs & Trade team.