SMEs still in limbo over low value import thresholds

In a recent speech, the Assistant Treasurer, David Bradbury, indicated the federal government was not in a position to lower the current $1,000 “Low Value Import Threshold” for GST and duty.

In 2012, the government commissioned the Low Value Parcel Processing Taskforce to investigate options to improve the efficiency of processing low value imported parcels. The work of the taskforce followed the 2011 Productivity Commission report on the Economic Structure and Performance of the Australian Retail Industry.

The Productivity Commission found that the low value threshold for GST and duty on imported goods was not the main factor affecting the international competitiveness of Australian retailers. While the commission did find there were in-principle grounds to reduce the low value threshold, it also concluded it would not currently be cost-effective to do so without significant improvements in the efficiency of processing low value parcels.

No simple or quick solutions

Bradbury said the taskforce did not actually make any recommendations regarding the level of the low import threshold, but proposed a set of reforms which would need to be implemented effectively before the threshold could be lowered.

In its interim response in December 2012 to the taskforce’s report, the government announced that consistent with the recommendations of the taskforce, it would begin preparing business cases and possible implementation plans for reforms to low value parcel processing.

Bradbury said the government recognises that “on the basis of fairness and tax neutrality, Australian retailers should not be disadvantaged by taxation arrangements which favour overseas retailers”. He said the government also acknowledged that the current threshold of $1,000 at which GST is collected on low value parcels is very high by international standards.

However, Bradbury said until these business cases and possible implementation plans for reforms to low value parcel processing have been prepared, and the costs associated with any possible changes have been determined, no decision can be made regarding the lowering of the threshold. He said the taskforce’s detailed report made clear that there were no simple or quick solutions to this issue.

Bradbury said lowering the low value import threshold before putting in place significant reforms to processing capabilities would cause major disruptions to the international mail service and result in major inconvenience to the businesses and consumers that rely upon it. It could also disrupt the operations of air and sea cargo carriers, which deliver 10 million low value parcels to their customers each year.

“There is no point having a system where the cost to taxpayers of collecting the GST on low value parcels would outstrip the revenue that is collected”, he said.

Political ping pong leaves SMEs in the balance

The taskforce also recommended that, given the complexity of duty arrangements, combined with the trend for duty rates to be lowered and/or abolished in the future, duty and GST low value thresholds be separated to facilitate a more efficient process for handling low value imports, including an option for revenue collection.

The government in its response noted the complexity of applying customs duty to low value imports due to the absence of sufficient information and systems to establish tariff classifications. It therefore agreed that, in the first instance, any reduction in the low value threshold would be for GST only.

The government said it would introduce legislation to separate the low value threshold for GST purposes and the threshold for customs duty. That legislation has not yet been introduced into Parliament.

The threshold for GST will be included in the GST legislation and, while initially set at the current level, will be able to be varied to reflect any decision to lower the threshold. The threshold for customs duty will remain at $1,000 until such time as sufficient data and systems necessary for efficient and effective customs duty assessment become available.

The government also noted that involving overseas suppliers in collecting the GST due on low value imports could generate efficiencies for import processing by reducing the need for revenue collection at the border. However, the report emphasised that this reform would only be effective as part of a broader range of reforms related to revenue collection at the border and not as a standalone reform. The government said it would consider ways to progress this reform as part of any broader package of reforms which is implemented.

While the taskforce did not make any recommendations regarding the level of the low import threshold, the GST Distribution Review Panel, in its November 30, 2012 report, recommended that the low value import threshold for GST be lowered to prevent the ongoing erosion of the GST pool. Initially, the recommendation said the threshold should be lowered so that it does not exceed $500 and this should occur “as soon as practicable”.

This whole issue is something of a work-in-progress, but one that is of keen interest to many SMEs. Certainly more people are now shopping online, but it has been argued that GST is not necessarily the main driver of people buying from overseas. An election year doesn’t bode well for anything happening soon, but the issue is not going away.

Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.