The federal government will have no means of forcing companies to apply GST to overseas online sales under legislation to be introduced in Parliament’s next sitting fortnight in October.

In what could end up being his last press conference as treasurer, Joe Hockey announced the legislation to collect GST on online sales would be introduced in the next sitting period.

Currently, GST is only applied to goods bought overseas worth $1000 or more. This threshold was set well before the advent of online retailers. Australians spent $15.7 billion online between January and August in 2014 through both domestic and international retailers.

Harvey Norman co-founder Gerry Harvey has led the retailer campaign against two successive governments to get the tax placed on online purchases in a bid to drive consumers back to his stores.

The previous Labor government tasked the Productivity Commission in 2011 to look at how the threshold could be reduced to catch the majority of overseas online sales. The model examined by the commission would have required Customs to examine every single parcel coming into Australia and apply the GST to those items over $20. It would not be economical, the commission found, as Customs would have to process more than 30 million parcels a year (by way of comparison about 20,000 parcels were processed in 2009-10).

“Lowering the threshold to $20 would raise in excess of $550 million in tax revenues, but the cost of the processing using the current system would escalate to over $2 billion — more than three times the additional revenue collected,” the Productivity Commission found.

In January Assistant Treasurer Josh Frydenberg said we should follow the UK and Canada in lowering our threshold and collect additional processing and handling fees to balance out the cost of processing all the parcels. He suggested at the time that the cost for processing was coming down.

“Importantly, the cost of ­enforcing a lower threshold is coming down as payment ­processes adapt to increased ­online demand,” he said.

It was unclear exactly what new technology was bringing down processing costs, but the government has abandoned plans to process parcels when they arrive in Australia to apply the GST. The legislation to be introduced in October — potentially by treasurer-in-waiting Scott Morrison — will instead try to get the overseas online retailers to apply the tax themselves at the point of sale.

The difficulty in this approach, however, is that the government cannot force online retailers and others offering digital services to Australians that have no physical presence in Australia — like Netflix — to collect the GST.

Hockey confirmed this to be the case on Wednesday, but he said a number of other countries had introduced similar legislation..

“There are companies like Amazon and Facebook and others that are prepared to work with countries, wherever they may be located, to apply consumption taxes should that country request it. That’s because they actually don’t pay the tax themselves, it’s their customers that pay the tax,” he said.

“So I am absolutely confident … those sort of companies will work with the Tax Office to apply GST to their sales in Australia, because they’re doing it in other countries around the world. And that’s because they want to be good, global corporate citizens.”

Taxation Commissioner Chris Jordan said it would be voluntary, with larger suppliers keen to be seen to be complying with local laws.

“Now there’s — and that is the vast bulk of sales in terms of percentages — there’s a multitude of small suppliers. Let’s wait and see how that turns out. Wait and see the size of that and work out if there are some other measures that might be feasibly introduced to pick up on more of those,” he said.

Crikey understands that a number of retailers, and other companies like Netflix, have agreed to put the GST on their products. It is not yet clear whether the companies will absorb this cost or just add it on to the price for goods. Amazon already applies value-added taxes outside of the US in places like Europe and the United Kingdom.

But there could still potentially be workarounds to any system put in place. For example, customers could simply switch to a smaller online retailer. Another way around it could be for the items to be sent via a third party. Some companies in the US already offer a service that will collect Amazon purchases not available outside the US and ship them to the rest of the world. The latter would only be an economical means of avoiding the GST if the cost for the service was less than 10% of the purchase price.

Hockey has previously indicated the GST would begin to be applied for overseas online purchases by the companies that agree to collect the tax from July 1, 2017.

Peter Fray

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