Foreign sellers to be subject to Australian GST on low-value imports
Creating a greater compliance burden for businesses, Australia has released plans to extend its 10% GST rate to low-value goods purchased from foreign sellers and electronic distribution platforms (EDPs).
Under the proposal, foreign sellers and EDPs with a turnover of more than A$75,000 ($56,000) in Australia will have to register, collect and remit to Australia GST for goods valued at A$1,000 or less that are purchased by consumers.
“These changes will challenge the existing compliance model for the Australian Tax Office (ATO),” said one Australian adviser, who asked not to be named. “The ATO will need to educate foreign sellers and EDPs of the changes. Compliance activity will be difficult for all but the big players.”
The measure is due to take effect from July 1 2017 after the consultation period on the proposal ends on December 2 and the rules are approved by parliament. The bill will amend the GST Act 1999.
GST on goods worth more than $1,000 is already collected upon importation to Australia. The threshold was initially designed to reduce administrative and compliance costs for suppliers and importers, which would outweigh the revenue collected. However, the new rules will now shift the compliance burden to foreign sellers and EDPs.
Once the rules are implemented, foreign sellers and EDPs will need to:
Register for GST as a limited registration entity;
Lodge business activity statements on a quarterly basis; and
Change their systems to determine when GST arises and collect GST.
Larger businesses should have the capacity to comply with the changes relatively easily as they will already have been preparing for such rules, given that Australia announced plans to remove the low-value goods exemption earlier this year. The EU and Taiwan will also be implementing similar measures.
Making smaller non-resident businesses aware of the changes, therefore, is likely to be the largest challenge for the ATO, considering that many of these businesses will never have come into significant contact with the revenue authority before.
As such, one adviser, speaking to International Tax Review on the condition of anonymity said the Treasury expects non-compliance to be high. “Ultimately, it is a matter for the ATO to ensure compliance. Practically, there is a real risk that only the larger businesses will be forced to comply/subject to ATO compliance activity with the vast majority of goods imported not covered.”
Small and medium-sized businesses should devise systems to monitor their sales into Australia to see if they breach the A$75,000 threshold for GST. The issue is also important for EDPs, which are more likely to be ensnared by the regulations if they are enacted without change.
The proposed changes applying to EDPs are broadly similar to recently-passed legislation – the so-called ‘Netflix’ GST changes, which affect sales of digital services – but with the key difference to the treatment of EDPs.
Under the Netflix changes, EDPs were only deemed to be the supplier if they controlled a key element of supply such as price, terms and conditions or delivery arrangements. However, under the proposed rules, the criteria has been altered so that the operator of the platform is treated as having made the supply and is thus liable for GST purposes.
“The challenge is for platforms that merely facilitate the supply – these platforms will need to significantly change their payment systems to ensure that they can comply with the new rules,” an adviser said.