What now for the GST?
Up until recently, the Government was happy for the states to sort out changes to GST, however does the arrival of a new PM signal a change in focus?
Fifteen years after the introduction of the GST in Australia debate still rages over what should be taxed and whether the GST rate should increase. While the dialogue between the Federal Government and the states has been ongoing, any change requires the approval of the states. At last month's Treasurers' workshop, the resolution was to keep the GST rate at 10% and enable a series of other changes.
Until that occurs, what are the key areas of change that have been agreed?
GST on online products
From 1 July 2017, the GST will be broadened to apply to all goods purchased online and imported from overseas. Currently, GST does not apply to inbound goods under $1,000.
The latest NAB Online Retail Sales Index estimates that Australians spent $17.3 billion on online retail in the 12 months to June 2015 - around 7% of traditional bricks & mortar retail.
It's difficult to find an accurate measure of how much of this online trade goes to overseas retailers but the Productivity Commission report in 2011 estimated 7.5% - the rest is spent with Australian retailers. According to the same report, around 76.5% of all online sales are for goods made up of low value purchases under $100.
The Treasurers have decided on a vendor registration model, which basically means they are relying on offshore businesses that sell into Australia to register and comply with Australian Tax Law. However, it's not without issues.
The core issue is how to collect tax from businesses that have no obligation to comply, coupled with the fact that the Government has no jurisdiction to pursue outstanding tax. It is near impossible to bring all but the largest suppliers into the GST net.
Despite an OECD report in early 2015 recommending that foreign suppliers register in the countries they supply to, it will be worth watching to see if this becomes the norm. The intent is to protect the tax base, however it could create major competitive disadvantage for small business looking to explore new markets.
In last year's Federal Budget, the Government announced it would broaden the GST to include digital products
supplied to Australian consumers of digital services in the same way it applies to equivalent supplies delivered from Australian businesses.
The so-called "Netflix" tax treats streaming or downloading of movies, music, apps, games, e-books as well as other services such as consultancy and professional services in a similar way to local suppliers. In some cases, this may shift the GST liability to online distribution services that have responsibility for billing, delivery and T&Cs. The tax is expected to generate $350 million over four years.
GST on digital products is intended to apply from 1 July 2017.
Despite a concerted effort to axe the tax on tampons
, the State
and Territory Treasurers rejected Joe Hockey's proposal to remove the GST from feminine hygiene products.
GST on feminine hygiene products generates around $50 million in revenue per year. It has been a political sore point for some time that highlights the inequities of a system that taxes essentials but not items such as personal lubricants. Toilet paper and nappies, other essentials of life, are also taxed.
So why does this inequity exist? When the GST was first introduced, to get the legislation through Parliament the Howard Government agreed to demands to make amongst other things food, health and medical supplies, and education GST-free.
The rationale is that because the GST applies evenly across all things, it hits low-income earners the hardest as they spend a higher proportion of their income on basic necessities. On these grounds making feminine hygiene products, nappies and a range of other essentials GST-free sounds rational.
The problem is that the wealthy benefit from GST-free products and the tax system becomes a quasi social welfare system that dramatically impacts on the revenue collected and revenue available to fund better targeted social welfare programs.
It's a touchy debate and one that the major parties are unlikely to want to enter anytime soon, however with the elevation of Malcolm Turnbull to Prime Minister, debate is stirring again about whether he will tackle it as part of broader tax reform.
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