Online Retailers Lose Battle With Australia Over GST Collection

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By Peter Hill

Online selling platforms such as eBay, Alibaba and Amazon have lost their battle to convince the Australian government not to proceed with the tax law coming into effect next July that will require them to collect goods and services tax of 10 percent from buyers of low-value, imported goods.

Federal Treasurer Scott Morrison said in a Nov. 9 news release that a report by the Australian Government Productivity Commission confirmed the government’s approach of choosing the legislated “vendor model” for collection of GST on low-value imports—defined as goods under A$1,000($764)—was “the most practical and achievable option and provides industry with certainty.” The platform will be required to remit the collected taxes to the Australian Tax Office.

The government in June 2017 tasked the commission, an independent research and advisory body, with holding a public inquiry into the effectiveness of the new law and whether other methods for collection of the tax might be suitable. The commission concluded in its report, which was made public Nov. 9, that “the legislated model is the most feasible among the imperfect alternatives at this time.” This was despite the commission’s belief that the model would result in only “modest” GST being collected and acknowledgment that foreign suppliers “will incur significant costs” in complying with it.

The Productivity Commission favored the legislated model because, according to the report, it should “go some way to improving tax neutrality between imported and domestic low value goods and avoid major disruption for consumers when importing goods." 

Low-value imports into Australia were originally exempted from GST when the tax system started in 2000. The threshold for exemption was A$1,000 value. Under pressure from local retailers, the Australian government introduced the Treasury Laws Amendment (GST Low Value Goods) Act 2017 to remove the exemption. Originally intended to commence July 1, 2017, the government delayed the new tax for 12 months. The Productivity Commission was tasked to review the appropriateness of the legislated model of collection of the tax on low-value imports, which places the onus on vendors to collect and remit.

Industry Opposed

Amazon, eBay, Alibaba, and other online platforms strongly opposed the vendor model for the collection of GST on low-value imports in both written submissions to the commission and in testimony given at an Aug. 24 public hearing held by the commission.

James Hudson, director of corporate affairs for Alibaba in Australia and New Zealand, told the commission at the hearing that “the enforcement of the current model is unworkable, has low predicted compliance and is contrary to good international tax policy. We strongly recommend that the Commission further interrogate a logistics model.”

Kevin Willis, director of global trade services for Amazon, told the same hearing that the legislated model wouldn’t achieve the government’s objective of a level playing field “for Australian retailers against foreign imports.”

Willis said that Australia will be unable to enforce compliance with the legislated model and will need to rely “on voluntary compliance by many thousands of non-resident vendors and marketplaces that have no presence in Australia.” Willis said that many businesses won’t comply with the obligation to collect GST on behalf of Australia, without consequence.

Also, Willis said that the legislated model “will motivate behavioral changes directed at avoiding the laws.” He said suppliers would easily be able to migrate to multiple marketplaces, and that Australian customers, in turn, “will adapt their buying behavior to seek out vendors and marketplaces who do not charge GST as a result of pricing incentives.”

Willis also pointed out the Australian Treasury’s assumption that when fully operational the vendor model would achieve a collection rate of only 54 percent. He said that even if that assumption was accepted—which Amazon considered optimistic—it meant that 46 percent of the value of low-value imported goods into Australia would escape GST. “This is far from a level playing field,” he said.

Report Rejects Alternative Approach

In place of the vendor model of collecting GST on low-value goods, Amazon had pushed for a “modernized transporter model,” whereby the Australian transporter of the imported goods would be responsible for collecting and remitting the GST, and should include the tax as part of its transport charges. Willis said that “by collecting GST from transporters the model will drive consistent treatment of parcels entering Australia, irrespective of who sold them, and will ensure significantly greater GST collection rates.”

In its report, however, the commission said Amazon’s proposed transporter model wasn’t a feasible alternative in the near term, despite acknowledging it “could achieve higher compliance and collection rates than the legislated model.” The commission said there were several practical obstacles to the model and that the transporter model “would impose considerably higher administrative and compliance burdens on the government, businesses and consumers than the legislated model.”

In her statement to the commission’s Aug. 24 hearing, Kristen Foster, director of government relations for eBay in Australia, New Zealand and Japan, said she opposed the legislated model. She called it “an unprecedented and dangerous move” by the government.

Foster also referred to earlier evidence given by representatives of the Australian Retailers Association, supporters of the decision to impose GST on low-value imports. She said that “they don’t have to make the current vendor model work; in fact they clearly didn’t think it would. They outlined their support for any model that would disadvantage foreign sales, even if the revenue was wiped out by the cost of collection. This could be seen globally as protectionism, damaging to Australia’s productivity, Australian consumer choice, and Australia’s innovative local small businesses buying and selling worldwide online.”

Effect on Foreign Sellers Cited

Foster concluded by saying that for eBay to comply with the vendor model it would need to “switch off” foreign sellers. But, she added, “it doesn’t mean that we would be abandoning the Australian market and eBay.com.au and the 30,000 businesses that we support here locally, but that is the reality.”

Following the release of the commission’s report, a spokesperson for eBay told Bloomberg Tax in an email Nov. 10 that the company understood the need for a level playing field, but that “the major marketplaces and a range of other core stakeholders made it clear … that the method of collection proposed is unreasonable and unworkable.”

The spokesperson also expressed eBay’s hope that before the new GST comes into effect on July 1, the Australian government and the Organization for Economic Cooperation and Development will work cooperatively to “investigate a global solution to levying taxes on foreign sellers that does not damage trade, reduce productivity and deny customers access to trusted third-party platforms.”

Amazon didn’t respond to a request for comment.

To contact the reporter on this story: Peter Hill in Sydney at correspondents@bna.com

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

For More Information

The Productivity Commission’s report is available at http://www.pc.gov.au/inquiries/completed/collection-models/report

The transcript of the Commission’s Aug. 24 hearing is available at http://www.pc.gov.au/__data/assets/pdf_file/0019/221275/20170824-melbourne-collection-models-transcript.pdf

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