GST on LVT – the Bill that keeps on giving

This article was first published by Daily Cargo News.

A previously reported, the Bill to impose GST on low value imported goods (LVTs) has recently passed through our Federal Parliament. However, by no means have all the issues associated with the Bill been resolved with certainty.

Readers will recall that the Bill was subject to heated debate before a Senate Committee and ultimately passed with two major caveats recommended by that Committee. First, that the provisions would not commence until 1 July 2018 and second, that certain issues associated with the Bill would be referred to the Productivity Commission (PC) for consideration and recommendations.

While the Australian Taxation Office, Treasury and the Department of Immigration and Border Protection have been working on implementation of the new provisions to recover the GST in accordance with the Bill, most attention has turned to the work of the PC which has continued to disclose the disparity of views regarding the ‘model’ to be adopted to impose and collect the GST.

As has been mentioned before, the legislation uses a ‘vendor collection model’ in which vendors (including suppliers and online marketplaces) are intended to collect the GST on low value imported goods at the point of sale. This model had been opposed by an alliance of online marketplaces whose preference would be for a ‘distributor’ or ‘logistics’ model where the GST would be collected by the parties delivering the goods – which model was strenuously opposed by the same parties who would bear that responsibility.

The Inquiry before the PC has given both sides the opportunity to air their opposing views.

The scope of the PC Inquiry

The scope of the PC Inquiry is to consider the amendments to the GST Act to collect GST on LVTs including:

1. the effectiveness of the amendments
2. whether models for collecting goods and services tax in relation to offshore supplies of low value goods other than the amendments might be suitable (including evaluation of the effects of the models on Australian small businesses and consumers), and
3. any other aspect the Commission considers relevant to the implementation of the amendments.

The PC was also required to make recommendations in relation to these matters. In doing so, it needs to be taken into account that the PC only makes recommendations which are by no means binding on Government and in doing so, the PC adopts a rigorous evidence-based economic analysis that looks to the best economic outcomes and does not necessarily take into account other social or policy aims. In doing so, the PC has often made recommendations which can prove unpopular or be criticised for their limited scope.

By way of example, the PC has been critical of the perceived merits of our FTA agenda and has recommended the removal of all tariffs on any account. I have been involved in a number of PC inquiries including its inquiry into our anti-dumping and subsidies regime where the PC recommended the adoption of a ‘bounded’ national interest test so that even if injury was found to have occurred due to dumping or subsidies it was still open to those responsible to prove that the national interest in the benefits from those actions (in terms of cheaper goods for consumers and cheaper inputs to manufacture) provided a national interest which exceeded the harm from such injury. Unsurprisingly this recommendation was not adopted by Government and in the context of a world where protectionism and national interest are on the rise, it is hard to see that such a recommendation would be widely endorsed other than by those who look to the actual theory.

The conduct of the PC Inquiry

The reference to the PC required it to consult with consumer representatives, small business, industry stakeholders and Commonwealth, State and Territory governments with a final report to be provided to Government by 31 October 2017 to ‘allow certainty for industry on legislation that is to commence on 1 July 2018’.

To do so, the PC adopted a staged approach which included:

• the issue of a background paper by the PC,
• opportunities for written submissions, and
• public hearings.

In this inquiry, the PC set a date for written submissions of which it received 39 before the deadline and then, to date it has received three since that deadline, mainly to address commentary on the model proposed by Amazon for the imposition of the GST where it proposed a ‘Modernised Transporter Model’ as a version of the logistics model. That model moved responsibility for the GST to the importer with the responsibility for levying, collecting and remitting the GST being imposed on the logistics provider (normally the express air carriers or Australia Post), all of whom are actually in the jurisdiction.

In addition to written submissions, there were two public hearings attended by a number of parties who gave evidence in person, the transcripts of which are available on the PC website for the inquiry. I attended the Melbourne hearing of the PC where the main parties contesting the collection model were represented and it was interesting to hear their evidence supporting their different positions. Among the more interesting comments from some of the online retailers was that the ‘vendor’ registration was so difficult to administer it would both be a disincentive to continue to operate in Australia and open Australia to retaliation against its exporters.

Debate on the model to impose and collect the GST

Ultimately, the differences in the models proposed for imposition and collection of the GST point reflect that there is no one model which parties agree satisfies all the aims of the legislation and associated policy. Those for and against the current vendor registration model both make excellent arguments which go to issues such as the ability of the government to compel compliance and recover GST so as to make the regime efficient and deliver the required outcomes.

Outcomes for the regime

The PC is tasked to report by the end of October with its recommendations. On the basis that the regime is due to commence on 1 July 2018 and given that industry has been told to prepare for the vendor registration model, the reality is that there would need to be compelling reasons for the government to change that model and require an entirely different one placing the obligations on those delivering the goods. However, even if the current model is to be retained there will no doubt be other recommendations to adjust that model to enhance compliance and revenue recovery which could bring the model closer to achieving the required outcomes.

In the meantime there are other important issues for industry and their clients whose goods are now subject to GST. These include:

• Understanding the new regime and the eventual model adopted by government.
• Ensuring that overseas clients (being the vendors) understand the new regime, register where required and comply with their obligations.
• Understanding the way in which those in the supply chain who carry the goods, report the imports which will then be subject to GST and on what electronic document.
• Dealing with any processing charges on the imports subject to the regime. There are currently no import processing charges on LVTs but I understand that will now change for LVTs now subject to the GST so that a charge will be made.
• Educating staff, clients and contractors.

The other important issue is the way in which compliance will be monitored and non-compliance addressed by the ATO and the DIBP. At the moment any errors in any reports could attract penalties and lead to interest being payable on the amounts underpaid. As with other legislation we can only hope that government and its agencies adopt some form of moratorium against inadvertent errors in dealing with the new regime and exercise some care against undue compliance action.

As always, stay tuned and if pain persists, please see your lawyer.