Government expected to abandon push to drop GST threshold

The Government is expected to abandon any plan of reducing the tax-free import threshold of $1,000, opting instead to focus on improving import procedures to save money.

The reports of the Government’s intentions come alongside the release of the GST Review, which suggests that the low-value import threshold be lowered “to prevent the ongoing erosion of the GST pool”. It suggests initially lowering the threshold to not exceed $500, and that “this should occur as soon as practicable”.

However, media reports suggest the Government won’t be lowering the threshold at all. 

The move will undoubtedly upset the retail industry, which has been urging the Government to reduce the $1,000 threshold and tax online sales in order to create a “level playing field”, at a time when more retailers are under pressure and facing increasing competition from international websites.

Retailers have already expressed their disappointment. Trevor Evans, executive director of the National Retailers’ Association, told SmartCompany this morning that previous reports already show the government agrees with the principle that the tax system is unequal.

“Other jurisdictions have managed to solve this problem in recent times, with similar loopholes in their tax regimes. And the Government’s own taskforce has outlined a number of options.”

However, despite the disappointment, Australian Retailers’ Association executive director Russell Zimmerman told SmartCompany this morning he believes there is hope for an eventual review of the threshold.

“The ARA has recently had in depth discussions with both government and opposition around the tax loophole around online overseas imports and the need for the Low Value Import Threshold to be reduced.”

“We believe there will be movement but we are waiting on final decisions from government as and when they happen. From its extensive discussions the ARA believes the Government is looking at all available options moving forward.”

The Government’s response, expected this afternoon, is in many ways not a surprise. The Productivity Commission released a report last year in which it said lowering the threshold would cost more money than it would raise.

More recently, the Treasury taskforce found that while lowering the GST-free threshold would be a beneficial, it would have to come alongside changes to procedures dealing with parcel importation.

The problem is that the current postal system isn’t set up to handle the huge amount of parcels being sent due to online retailing. More time spent on cataloguing each item increases costs, thus reducing any benefit of lowering the threshold. A systemic overhaul needs to be completed before a lower threshold can deliver a benefit.

Some of the original recommendations in the report include legislative arrangements to collect GST either overseas or domestically. Other proposed reforms seek to streamline how often items are catalogued and shipped.

Evans told SmartCompany this morning the move is one of political expediency before an election, arguing there are already processes in place for determining the value of a parcel before it enters the country.

“It’s not as if a new system needs to be introduced,” he says. “It’s just a matter of scale.”

The GST review also recommends a suite of changes be made to the GST system, including changes to state-based revenue measures and payments.