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Why an extra GST on foreign goods won’t work

Members of the government want to tax the cheap goods millions of Aussie shoppers buy from overseas, driving up costs in a bid to level the playing field for local retailers.

The good news – for those millions of shoppers – is that such a tax would be almost impossible to enforce, with overseas merchants easily able to fudge documents to avoid any such increase in the GST, retailers say.

Several senior figures in the Abbott government, including assistant treasurer Josh Frydenberg, have argued in favour of a GST increase on more overseas purchases.

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Mr Frydenberg, who was recently promoted to the front bench, has pledged that the current GST threshold, which exempts all packages under $1000 from the 10 per cent tax, will be “looked at” in the government’s upcoming tax white paper.

National Online Retailers Association executive chairman Paul Greenberg says enforcing the tax “won’t be straight forward” because there are at least two ways to avoid it entirely.

Paul Greenberg NORA

Retail expert Paul Greenberg says an online GST crackdown can be avoided.

“Shoppers can be quite creative,” he says.

The most common strategy is under-invoicing, whereby the seller lies to Customs about the true value of the package, declaring it as just under the $1000 threshold, or whatever the new limit may be.

Up to nine per cent of ‘high risk’ sea and air cargo, such as electronic goods, bicycles and musical instruments, may be under-invoiced, according to a Customs report.

For example, China-based ebay seller CarbonZone, which sells bike parts, declares openly on its page in broken English that it will under-invoice if asked.

“[W]e’ll mark it with a little low declare in case you pay too much taxes,” says the seller.

A Brazilian merchant selling a camera lens at a price above the GST threshold also offers to deceive Australian customs.

“The item will be shipped as gift and declared value as US$40 or any higher value the buyer needs,” says the seller.

In 2011, the Gillard government conducted a three-month crackdown on under-invoicing, which found that ‘creative’ shoppers had tried to avoid $589,000 worth of GST on 1,942 packages between January and March.

Post office red light

Slapping extra GST on online purchases won’t stop Aussies buying overseas. Photo: Getty

Those caught during the blitz had to pay the tax they tried to avoid, and risked a fine of up to three times the value of the goods. But to catch the dodgers, Customs had to double inspections on sea and air cargo and increase the amount of international mail it opened by 75 per cent.

Speaking to The New Daily, a spokesperson for Customs and Border Protection denied that under-invoicing is “widespread”, but noted that penalties have been increased to “encourage positive changes in behaviour”.

Since the crackdown, the penalty for providing false or misleading information to Customs has almost tripled to $42,500.

An expensive order can also be split into multiple packages to avoid GST, although customs has the power to combine the value of multiple packages for tax purposes. During the 2011 crackdown, Customs found a $217,000 bulk order of MP4 players which had been split into individual packages valued under the threshold, saving the importer almost $23,000 in GST.

Mr Greenberg has faith that most online shoppers are “basically honest” and wouldn’t use these loopholes, but says the tax increase could be doomed for another reason – that of cost.

“The cost of collection may well exceed the revenue,” he says.

Following pressure from the retail sector and a recommendation from the Productivity Commission, the previous Labor government considered lowering the threshold, but chose not to because of evidence it would be too expensive to enforce.

There is no doubt, says Mr Greenberg, that the current threshold is “exceedingly generous” and “completely out of step with the rest of the world”, but even a massive 90 per cent drop would be unlikely to impact most shoppers because the vast majority of orders are below $100.

Tax button

Lowering the GST threshold could be more hassle than it’s worth. Photo: Shutterstock

The real reason Australians shop online is not to dodge the government’s 10 per cent consumer tax, but to negotiate around the ‘Aussie tax‘ to access even bigger discounts and a wider variety of products.

IBIS World senior researcher Lauren Magner previously told The New Daily that local retailers would be unlikely to benefit from a lower threshold because consumers are attracted to online shopping by factors other than price.

“If we do eliminate the $1000 threshold it won’t make much of a difference. The main reason Australian retailers will take back market share from international retailers is because they’re migrating online and offering more products and becoming more competitive in their pricing,” Ms Magner said.

Mr Greenberg agrees, saying an online GST hike may not be cost effective and certainly won’t save the struggling local retail market.

“There is far more work to be done at home, meeting or beating the offshore offer. In the industry, we are wasting a lot of heartbeats because we think the 10 per cent is going to save us. It’s not,” he says.

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