by JP Canavan
The Australian government on 16 February followed through on its commitment to overhaul the goods and services tax (GST) regime in relation to the importation of low value goods by consumers, introducing Treasury Laws Amendment (GST Low Value Goods) Bill 2017 (the ‘Bill’) to Parliament.
The new regime would apply to such low value good sales effective from 1 July.
The proposed amended GST rules follow the ‘destination principle’ of the OECD’s International VAT/GST Guidelines. The intent is that all goods should be subject to the same taxation regime, whether imported or purchased domestically.
Australia GST, current state of play
Under current law, where a foreign seller does not have sufficient connection with Australia (commonly referred to as the ‘indirect tax zone’) for the purposes of importing the goods into Australia, there is no requirement for the seller to pay GST on the supply of goods to a customer.
Also, where a foreign supplier has sufficient connection with Australia, the seller will only need to register for and remit Australian GST if the current GST registration revenue threshold is exceeded.
In the case of for-profit enterprises, this threshold for imported goods is AUD $75,000 (~ USD 57,000) in any 12 month period. For non-profits, the Australia GST threshold is AUD $150,000 (~ USD 114,000).
Furthermore, where the goods are valued at AUD $1,000 (~ USD 760) or less for customs purposes, the consumer will not be liable to GST on the import of the goods either.
It has often been argued that this regime results in a significant pricing disadvantage to Australian retailers, as their sales of low value goods are subject to GST while foreign competitors’ imported comparables generally are not.
New low value rules
The revised regime would oblige all suppliers, electronic distribution platforms, and goods forwarders/re-deliverers to account for GST on the sale of low value goods to consumers, where they exceed or are expected to exceed the GST turnover registration threshold.
An electronic distribution platform business is one which provides a service (e.g., a website marketplace, call centre ordering operation) which permits foreign entities to make supplies available to Australian consumers and the service is delivered by means of electronic communication.
This definition does not include a website which solely advertises goods for sale with no attaching terms and conditions. The accompanying Explanatory Memorandum details a number of examples specifically relating to electronic distribution platform operators.
The proposed Australia GST regime has, in effect, reduced the required connection a foreign seller of low value goods for the purposes of GST.
A foreign supplier will now be connected with Australia where:
- as part of the supply, the supplier brings the goods to Australia but does not itself import them;
- the supplier delivers or arranges/facilitates the delivery of the goods; and
- the consumer is not GST registered or if GST registered the purchase is for non-business reasons.
Business to consumer (B2C) sales now caught by the amended regime will, in general, be subject to the standard Australian GST rate of 10%.
The rules will not impact business to business (B2B) transactions of low value goods, as registered GST Australian businesses will continue to account for GST on the reverse charge basis. However, businesses will now need to notify foreign suppliers of its Australian Business Number for GST to not be applied to a sale of certain low value goods.
It is important to note that these rules will not apply to low value GST-free goods, such as basic food, precious metals, etc.
The consumer must pay the GST for imported goods that exceed a customs valuation of AUD $1,000 (~ USD 760), for the goods to pass through customs.
To relieve the added administrative burden levied on foreign suppliers, the Australian Tax Office has introduced a limited registration regime.
Under this regime, an offshore resident can register for Australian GST and remit GST payments and returns each quarter (rather than monthly under full registration); however, they cannot recover GST input tax incurred in their Australian costs.
This trade-off will need to be examined by foreign suppliers to assess the costs/benefits of full or limited GST registration.