Lowering the GST import threshold will require careful political management

The push from the states to reduce the GST threshold on imported goods is being driven by a desire for a bigger pool of GST revenue and in spite of the inevitable backlash from consumers, they will get their way.

Australia’s A$1,000 GST low value exemption on imported goods is significantly higher than comparable countries such as the United Kingdom ($25), Canada ($20), Singapore ($330), New Zealand ($320). More importantly, the $1,000 threshold is too great a departure from the zero-threshold that applies to consumer purchases from Australian bricks and mortar retailers.

What may further anger consumers is the approach governments take to border security charges and tax collection costs under a lower threshold, given parcels that flow through the international mail stream into Australia are subject to manual, labour intensive processes.

Under current law, there are no Customs and Border Protection import charges levied on imported items valued at or below the $1,000 threshold. However, somewhere between $40 and $48 is charged to goods above $1,000. The Department of Agriculture, Fisheries and Forestry (DAFF) also levies a $15 charge on items above $1,000 only to support its biosecurity obligations.

As the 2012 report from the Low Value Parcel Processing Taskforce noted, the current approach to border charges involves cross-subsidies, infringes neutrality and undermines the government’s cost recovery principles. Accordingly, if the government decides to lower the GST threshold (to say $300), it will be faced with the decision as to the level of charges (if any) that will apply to the import.

In addition, GST collection costs for the newly taxed items is very likely to be passed on to consumers. The most likely outcome is that the express carriers and Australia Post will be required to collect and remit GST to Customs, and from there, be allowed to recoup these costs from the consumer.

Part of the reason for placing this burden on the express carriers and Australia Post is that goods can be released to consumers from Customs controlled premises before the GST is collected, thereby allowing for quicker delivery. This would also avoid the need to store “tax unpaid goods” at mail gateways and licensed premises, which already have significant capacity problems.

All up then, a consumer who purchases a $500 item from an overseas supplier could end up paying a lot more – say, $650-$750 – to actually obtain the item. The cost will be even higher if GST is levied on transport and insurance costs, which is currently the case for goods above $1,000.

The question of whether the lower threshold would also apply to customs duty will also need to be addressed, but this would not be a significant cost as most items only have 5% duty on them.

The other political issue involves the timing of a change to a lower threshold. On the one hand, the bricks and mortar retailers and the states would prefer a lower [permanent] threshold implemented as soon as practically possible. But border security agencies like Customs, as well as the express carriers and Australia Post, would like anywhere between 18 months to three years to implement it properly.

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