Eighteen years ago, our country introduced the Goods and Services Tax (GST) that, despite a few minor complications with certain exemptions, is relatively simple. When a supplier sells a product, the supplier needs to add ten per cent to the cost of that product and remit that ten per cent collected to the Australian Government. Or to put it another way, one eleventh of the final sale price of all products is the tax that needs to be paid to the Government.
Accountants were incredibly busy in the year 2000 readying and then implementing processes for GST collection and remittance. Software accounting packages were modified and new ones entered the market. Despite no-one liking a tax, the process replaced the incredibly complicated Sales Tax regime and a broad consumption tax seemed like a reasonable way to generate revenue.
When the legislation was introduced, titled ‘A New Tax System (Goods and Services Tax) Act 1999’, specific exemptions were given for international online purchases made under $1,000. A severe oversight I hear you ask? Not really. Sure – online shopping was available in 2000. Amazon and eBay both launched in 1995. Amazon was a dedicated book seller and was losing money. The jury was out on the long-term viability of Amazon and all online retailers. The amount of revenue generated from the sub-$1,000 purchases would have generated less tax than the compliance costs.
Over the ensuing eighteen years things have changed a little though. We are now at the point where 6.6 per cent of all retail purchases are made online. 79 per cent of those purchases are made from Australian resellers with 21 per cent made from overseas resellers. Tools and hardware sits at number one on the list of items sold online followed by toys then food and alcohol. After witnessing my teenage daughters shopping for clothing, surprisingly fashion sits in fourth position with homewares; pets; sports; nutrition; electronics and motor parts rounding out the top ten. It would be fair to say that online shopping has changed a little over the life of the GST so, with the increasing online market and years of heavy lobbying from local retail giants, particularly Gerry Harvey, the GST legislation will change from 1 July this year. From that date, all goods sold in Australia, regardless of value or method of purchase, will be subject to GST.
ATO officials have compiled a list of 3,000 overseas companies that would need to register with Australia’s government to collect GST on the government’s behalf. Enforcement will be a major issue though. The US and Chinese governments, for example, would be under no obligation to force companies operating within their borders to comply with Australia’s laws. This global marketplace thing is tricky and complicated.
In addition to the GST changes from 1 July, the government is also proposing to add a flat $7 fee to each and every international online product purchased by Australians. This is to cover the increasing cost of border screening. It may seem like a tariff on international purchases or even a money-grab from the Government but again the increasing volume of online sales (AU$21.6 B last year) has an obvious increase in the work required to process those imports.
One of the great challenges for governments across the world is to make sure legislation stays relevant for the way that communities operate. Thirty years ago, the online shopping world was not of consequence to a government making laws. Now it is significant. Governments are typically slower to respond to changes – we have seen that as blatantly obvious with the slow response from governments around the world to the illegal introduction of Uber – but they are finding they need to respond in a more timely fashion to the fast-paced world we are currently living in.
In the meantime, make those sub-$1000 purchases before the legislation changes for good on 1 July.