The growth of e-commerce has contributed to significant increases in the volumes of goods crossing Australia’s borders. Between 2013 and 2016, the volume of inbound air cargo and international mail parcels increased by 57%. Between 2017 and 2021, Australia expects a 30% year-on-year growth in air cargo, and the number of international mail parcels to double.

One of the reasons why online shopping has become so popular lies in the fact that goods with a value of 1,000 Australian dollars or less imported into Australia were, until 1 July 2018, exempt from goods and services tax (GST). These types of goods are referred to as low value imported goods.

As internet commerce grew, so had concern about the effects of the exemption. An increase in direct consumer imports of low value goods created concerns about the “competitive disadvantage for Australian retailers, impaired tax neutrality, and the loss of revenue.”[1]

Following a decade of debate and several government studies, in 2015, the Council of Australian Governments (COAG), an intergovernmental forum, agreed to extend GST to low value imported goods, and in 2017, the Australian Government passed the Treasury Laws Amendment (GST Low Value Goods) Act 2017.

The critical question was which collection model to use. It was addressed by the Australian Government’s independent research and advisory body, the Productivity Commission, which released a Report on Collection Models for GST on Low Value Imported Goods on 31 October 2017.

GST is a component of Australian tax law, which is administered by the Australian Department of the Treasury and the Australian Taxation Office (ATO). The choice was, therefore, in the hands of these two authorities. In line with the Productivity Commission’s recommendations, they opted for the Vendor Collection Model, which places the onus on overseas sellers to charge, collect and remit GST. This model was chosen as it enables tax neutrality between imported and domestically retailed low value goods to be improved, and because it was expected to have a minimal impact on consumers importing goods[2]. This model also has low administration costs.

However, ensuring compliance can be difficult with businesses operating in foreign jurisdictions. The ATO uses data matching, conducts investigations, receives information from industry and the public, and uses import data to monitor compliance with the measure.

Australia considered alternatives to this model, including:

• the traditional or border collection model, which is the current model for collecting GST, Customs duties and other indirect taxes on imports valued above 1,000 Australian dollars – the administrative and compliance costs significantly outweighed any revenue collected;
• the transporter-based collection model, whereby the delivery agent collects the GST from the importer and then remits it – the administrative costs and compliance burden did not result in this being a feasible model;
• the financial intermediary collection model, which would place the legal liability for GST collection on entities within Australia – the current payment systems do not collect sufficient information to assess a GST liability.

The Productivity Commission concluded that the Vendor Collection Model was the most appropriate for the Australian environment. It was adapted from the Australian Government’s approach to collecting GST on offshore supplies of services and digital products to Australian consumers.

Importantly, the Australian model does not charge GST at the point of importation: GST is applied at the point of sale on all low value imported goods (excluding alcohol and tobacco products that are dealt with separately).

An Australian consumer purchases goods online from an overseas market, which may be a merchant, online marketplace or redeliverer. The transaction is conducted online, and GST is collected by the supplier at the “checkout,” providing the goods are valued equal to or less than 1,000 dollars. The supplier then sends the goods to the consumer and completes a self-assessed clearance declaration. The supplier also remits GST to the ATO.

At the border, the goods may be inspected by the Australian Border Force (ABF) for compliance with broader importation requirements. If no further action is required from the Customs process, the goods are sent on to the consumer.

The Vendor Collection Model requires vendors, as well as electronic distribution platforms (EDPs) and redeliverers, to register with the ATO. Only foreign suppliers with taxable consumer sales to Australia of 75,000 dollars per year or more are required to collect and remit GST under the legislated model. However, EDPs that facilitate taxable sales to Australia of more than 75,000 dollars are required to collect GST on all sales of low value goods that occur on their platform, including by sellers with sales of less than 75,000 dollars.

Under the legislated model, registered vendors, EDPs and redeliverers have the option of providing the ABF with details of their Vendor Registration Number and (where applicable) the purchaser’s Australian Business Registration Number.

To implement a change that affects global entities doing business with customers in Australia required the ATO to rethink current business practices. The ATO partnered with global accounting entities, transporters, Customs brokers and peak bodies, such as trade associations. These entities’ position in the supply chain is significant, and assisted in developing the Vendor Collection Model that was implemented in Australia.

The ATO co-hosted a number of webinars for offshore businesses, including a Chinese language presentation with more than 2,000 attendees. All major platforms and suppliers have registered and are complying with Australia’s GST requirements for collection and remittance.

Operators have had to make changes to their payment systems to collect additional GST information and identify registered suppliers. Education for small overseas vendors is an ongoing challenge in the application, collection and remittance of GST applied to goods.

Collection of GST at the point of sale instead of at the border avoids trade flow disruptions, thereby minimizing compliance and administration costs. This allows border agencies and transporters to focus on key activities. More importantly, domestic businesses benefit from a level playing field.

The collection of GST on low value imported goods is still in its infancy. However, as highlighted in the Productivity Commission Inquiry Report, another comprehensive review of the legislated model is due to be undertaken in 2023, which will consider:

• the performance of the legislated model;
• compliance rates, and if unsustainable, how to improve them; and
• whether or not an alternative collection model, taking into account technological advances and policy developments, may result in a greater benefit to the Australian Commonwealth.

More information
www.abf.gov.au
www.ato.gov.au

[1] Collection models for GST on Low Value Imported Goods, Productivity Commission Inquiry Report No. 86, 2017, Page 17

[2] Collection models for GST on Low Value Imported Goods, Productivity Commission Inquiry Report No. 86, 2017, Page 13