Australian Goods Tax Targeting E-Commerce Faces Senate Block

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By Murray Griffin

Criticisms from Amazon, eBay, Etsy and Alibaba before an Australian congressional hearing has convinced key politicians to rethink a goods and services tax, making Senate passage unlikely.

If it were to pass, the bill would introduce an rare approach effective from July 1, requiring online marketplaces to collect and remit GST on low-value goods sold into Australia via their sites.

The same obligation would be directly imposed on overseas suppliers of low-value goods if they have Australian revenue of at least A$75,000 ($56,511), while eliminating the goods and services tax exemption for imported goods worth less than A$1,000.

Giving evidence before an April 21 public hearing for the Senate Economics Committee’s inquiry into the bill, Jooman Park, managing director and vice president for eBay in Australia and New Zealand, told politicians that “we are not sure if we can build tax collection capabilities.”

“If the legislation passes as is, while we have no tax collection capabilities, it will force marketplaces like eBay to prevent Australian buyers from purchasing from foreign sellers, because we do not want to violate the law,” Park said.

Commenting on the prospect of collecting GST from the many thousands of companies that use its platform, Amazon’s director of global trade services, Kevin Willis, said “there has never been a tax of this magnitude.”

The opposition Labor party and an influential minor party told Bloomberg BNA April 21 they are seriously concerned about the bill, following the Melbourne hearing.

“We think the process has been botched and there should be a one-year delay in order to get it right,” shadow assistant treasurer Andrew Leigh told Bloomberg BNA by phone.

The government had been “ham-fisted” in developing the proposal, he noted, describing the concerns raised by the online marketplaces at the hearing as “deeply concerning.”

GST Collection ‘Extremely Difficult’

Amazon.com Inc., Etsy, Alibaba Group Holding Ltd. and eBay Inc. had a common message at the hearing—that it would be extremely difficult for them to establish systems to collect GST on sales of low-value goods and that it would be better for freight and postal services to do it.

Park also had an eye to the potential global ripple effect of Australia introducing such an arrangement.

This could have a global impact, he told the hearing. “We have to assume all other governments, all other countries, will ask eBay to collect GST.”

“When you think about the vastness and the complexity of what this might take and the number of players that we are talking about, which grows daily, exponentially, as cross-border e-commerce and the attraction of the marketplace takes hold, including in Australia, it is difficult to quantify what the implementation costs are,” Willis said.

3,000 Online Marketplaces Affected

Timothy Dyce, Australian Taxation Office deputy commissioner of indirect tax, said the proposals are likely to affect about 3,000 organizations that are online marketplaces, large-scale sellers into Australia, or redelivery services.

Of these, about 38 percent are based in the UK, 27 percent are North American and about eight percent are in each of China and Hong Kong.

Dyce said options to deal with “extreme” cases where organizations refused to register despite repeated requests “involve potentially garnisheeing revenue flows or even assets.”

Organizations were also likely to be brought into line by the prospect of the tax authority in their home jurisdiction being advised by the ATO that the company is evading its GST responsibilities, he said.

“They don’t want their reputation in their own jurisdiction impacted by not complying in Australia,” he said.

No Confidence in Current Model

The bill aims to axe an arrangement that currently exempts imports worth under A$1,000 from GST, with the aim of providing a level playing-field for domestic retailers to compete against foreign-based traders.

But the opposition Labor party said evidence at the Senate committee hearing into the bill had made it clear the government needed to reconsider it.

Without further detailed work by Treasury, involving economic modelling, it isn’t possible for Labor to be confident about which model to implement, Leigh said.

Senator Nick Xenophon, a wily political operator who leads a team of three senators, similarly told Bloomberg BNA, “I am concerned this will be a debacle.”

“It could end up having all sorts of unintended consequences,” he told Bloomberg BNA by phone.

The government was trying to deliver a level playing-field for all retailers but “it’s going to end up giving us a lot of scorched earth” if it doesn’t step back and get its approach right.

Neither Leigh nor Xenophon said the government should definitely ditch the approach of collecting via online marketplaces, but both said their concerns needed to be taken more seriously and alternatives examined more closely.

Without the support of Labor or the Nick Xenophon Team the government would need the support of the Greens and a diverse mix of micro-parties to pass the bill.

ATO Cites Canadian, Swedish GST Models

Treasury officials told the hearing that Sweden has already legislated a similar approach that will take effect in 2018, and Canada uses a similar model to collect GST on imported subscription magazines.

The ATO said that it could ensure reasonable levels of compliance with the proposed arrangement, adding that the administrative burden for online marketplaces and foreign companies would be light.

But neither Labor nor Nick Xenophon were buying the reassuring comments from Treasury and the ATO that the collection model would prove workable.

Noting evidence from KPMG that the Treasury seemed to be anticipating a compliance rate of under 30 percent for the measure, Leigh said “I’ve been working on tax policy for a long time.”

“It’s hard for me to think of another instance in which Treasury has thought that three out of four players wouldn’t comply with the tax.”

The Senate committee inquiry into the bill will release its report May 9.

To contact the reporter on this story: Murray Griffin in Melbourne at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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