Associate Professor Dale Boccabella

The Federal Government has looked at slashing the tax free threshold for duty free goods, following complaints from retail giants that shoppers now want to buy online overseas. Retailers say they want a tax barrier to drive customers back into their stores, and a report by PwC today says that although Australia lags behind in online shopping, it is catching up fast, with an increase of 13% in sales expected this year.

However this could cost Australia more. The cost of collecting the tax may outweigh what tax revenue could be raised. As the Board of Taxation indicated around a year ago, there are many practical difficulties in collecting GST on goods bought over the web where the online shop is overseas.

The Government has now confirmed that it has examined reducing the threshold to $500, however online retailers such as eBay say that only a very small minority of transactions would be impacted by this, and little additional revenue would go to the government, which puts the cost of implementing the change at $38 million.

There are two alternatives to collecting the tax, both of which would be costly and time consuming, and neither of which would actually raise any significant revenue.

We could get the Australian consumer to collect the GST on the sale made to them and send a remit to the Tax Office. The bottom line here though is that Australian Governments are very reluctant to impose tax collection or reporting obligations on consumers as opposed to businesses. Quite simply, consumers wouldn’t want the hassle, and wouldn’t be thankful for having this burden imposed on them.

The alternative is to ensure that all companies that can trade online with Australian consumers are registered for GST. However, the government is under considerable pressure to keep overseas companies with only a few Australian customers out of our GST system because of the high compliance costs that go with GST registration, which would mean that the compliance costs can outweigh the revenue collected.

Indeed, one could query why the low value threshold was increased so significantly to $1,000 (from $250) in 2005, and why there wasn’t much opposition from retailers at the time. The brick and mortar retailers may have a point that this is placing them at a competitive disadvantage. However Australia’s GST is ‘only’ 10%. Admittedly anecdotal, I have seen price differentials between on-line goods and brick and mortar goods that cannot be explained by the presence or absence of GST, and is more likely to be from the high cost structures of brick and mortar businesses, and possibly from excessive mark-ups.

Dale Boccabella is an Associate Professor of Taxation Law at the Australian School of Business, University of New South Wales.