GST on all imported goods is on its way despite unanswered questions
09 March 2017
For many years, Australian consumers buying goods online from overseas have not been obliged to pay either customs duty or GST on 'low value transaction' (LVT) imports where the value of the consignment being purchased was less than $1,000.
That caused complaints from Australian retailers because they had to charge and collect GST on sales as well as pay local charges for income tax, rent, outgoings and staff.
At different stages, Government commissioned reviews of the likely costs of dropping the threshold compared to the likely revenue to be recovered, with those reviews suggesting that the costs probably outweighed the likely GST revenue recovered.
In addition, there would be significant inconveniences to the industry from the logistics of different reporting into the Integrated Cargo System (ICS), changes to the purchasing process and supply chain, and the increased compliance costs for importers, their service providers and for the Government.
The debate eventually went in favour of Australian retailers, with the announcement in the last Federal Budget that from 1 July 2017, GST will be payable on all consignments regardless of their value. Although the stated intent was to 'level the playing field' between overseas and local retailers, there was to be no change to the LVT for customs duty even where GST was now to be paid. The main issue for industry became how the new arrangements would work in practical terms.
The new provisions were subject to limited consultation in late 2016 and early 2017 by the Treasury, which has conduct of the new regime (not the ATO or the DIBP/ABF although both have been involved in the consultation). I was involved in reviewing the drafts of the relevant Bill and making submissions to the Treasury on behalf of some of those directly involved in the consultations.
The outcome was the introduction of the Treasury Laws Amendment (GST Low Value Goods) Bill 2017 (Bill) into Parliament on 16 February 2017. Given the rationale to the Bill, it is expected that it will pass through Parliament readily with the intent that GST will be imposed on low value consignments from 1 July 2017. However, due to the way the Bill has been drafted, if there is a delay in passing the Bill and bringing it into effect then the changes will commence on the first day of the next GST 'quarter' following the formal commencement of the Bill. Although this update addresses the 'low value goods' aspect of the Bill, it is important to realise that the Bill will also impose GST on the sale to consumers of 'inbound intangibles'.
The Bill and associated Explanatory Memorandum and 'Questions and Answers' have disclosed that the Government has opted for a 'vendor registration' model in which non-resident retailers, 're-deliverers' and 'electronic data platforms' (EDP) will need to register for GST, and collect and remit that GST, which is a significant change to current practices. This, alone will create significant challenges for those affected.
Some highlights of the Bill are as follows:
- Supplies below the previous low value threshold by overseas retailers and by Australian retailers using a 'drop shipment model' (direct shipping to Australia from outside Australia) to 'consumers' will be subject to GST from 1 July 2017.
- The change only applies to GST and not, at this stage, to customs duty.
- In some cases, GST liability will move to EDPs and 're-deliverers' with the EDPs liable even if the supplier organises the supplies itself.
- Supplies will be included in the supplier’s GST turnover and if that turnover exceeds the current threshold of $75,000 then the supplier, the EDP or 're-deliverer' will be required to register for GST.
- The supply of a number of low value goods in one order will individually be treated as low value goods even if they would, in total, be over the threshold of $1,000.
- Additional information will need to be provided on the relevant Customs documentation (SAC, cargo report, or FID). This will include the ABN of the offshore supplier, the recipient’s ABN and the extent to which it is a taxable supply.
However, even at this late stage, the proposed model does raise a number of difficult issues for those in industry affected by the change.
- A wide category of parties will now be subject to the GST regime and required to report, collect and remit GST for the first time. That, in itself, creates a level of complexity and uncertainty which had not existed before.
- At the same time that new parties will have obligations to report, collect and remit GST, they will also have new expenses to undertake those tasks – and new liabilities if those tasks are not done properly. Hopefully, some form of moratorium from liability is allowed for errors which are inadvertent.
- The new risks and liabilities may extend to the parties providing services to the EDPs, suppliers and 're-deliverers'.
- The form of report is not yet clear and whether there will be the use of an 'adjusted' SAC, full FID or revised cargo report including all the relevant information.
- It will require additional expertise on low value transactions for the first time in terms of calculating the exact GST and applying the correct exchange rates. Expertise in VoTI will now be at a premium.
- The imposition and collection of GST on imports may create an issue for returns of goods bought online. Once a consumer has paid a price including GST, if he/she returns the goods he/she would want the costs refunded – even where the supplier or EDP cannot secure a refund directly and only secure a GST credit. That could create a direct cost to that supplier in having to effectively refund the GST from its own sources.
- We have yet to hear whether the reports for these transactions which are now liable to GST will attract a processing fee, which is currently not payable on SACs. Given the additional complexity of the system, presumably there will be a new charge as opposed to having the transactions 'cross - subsidised' by processing charges on FIDs as is currently the case.
- There is still no transparency on whether the costs of the new system will be covered by the revenue recovered. If not, it may appear to be a case of the Federal Government effectively paying to 'level the playing field'.
It is fair to say that there is some tension associated with the new regime – which is not entirely consistent with international moves to facilitate trade and reduce costs in transactions at the border.
We will keep you advised on developments and, as always, if pain persists, see your lawyer.
This article first published in Air Cargo Asia Pacific magazine: Issue 247, March 2017.
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