GST threshold for online shopping – how Australia stacks up compared to the world

Three years ago, as online shopping began to take off, Gerry Harvey called for a reduction in the GST-free import threshold that allows shoppers to buy goods worth up to $1000 tax-free.

He’s since been joined by other retailers. And even though it’s been around for years, the issue is only getting bigger.

It’ll be the centre of discussions at a COAG meeting today, with several state premiers putting the issue on the agenda.

There’s logic to their requests. GST makes goods made in Australia automatically 10% more expensive than their overseas counterparts. Regardless of whether or not this is the deciding factor in whether consumers buy from here or overseas, it does make things that little bit harder for our domestic retailers.

There are two ways to correct this.

One is to remove all GST on goods worth less than $1000, but it’s unlikely Australia’s governments would forego such a revenue stream.

So the other way to fix the inequality is to tax goods bought in from overseas.

It seems simple, but it’s not. In 2011, the Productivity Commission looked at the issue, and gave it a miss.

“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 Commission stated.

“Moreover, the Commission’s indicative modelling suggests that, given the current high deadweight costs of collection, even after taking into account the gains flowing from greater tax neutrality, the net impact on overall community welfare would almost certainly be negative.”

The retailers dispute these figures, as the Australian Retailers Association chief Russell Zimmerman told New Daily.

“There are different methods [of collecting the tax]. One is getting every retailer who sends goods from overseas to simply register for the GST.”

Of course, this isn’t Australia’s problem alone. Many countries have some form of value-added tax, and all have to grapple with online imports. How do they solve the problem?

The Productivity Commission looked into it, but concluded that “there is very little public information available” on the matter.

“In considering the appropriate threshold it appears that some countries emphasise the economic costs and benefits of the threshold, while other countries place more emphasis on equity, law enforcement, or the protection of domestic industries,” the Commission stated in its report. “Where the costs and benefits are considered in determining the most appropriate threshold, the threshold may differ depending upon the administrative arrangements and duty and tax rates.

“In countries with low or no VAT/GST and low rates of duties, such as the United States, the threshold level at which the benefits of collecting revenue exceed the costs will usually be higher than in countries with high rates of tax and duty.”

Australia has a relatively low rate of GST by global standards (the OECD average is 17.6%), which is part of why the cost of collecting it exceeds the revenue it brings in for the government.

Regardless of whether or not they break even doing it, most countries do have a higher tax-free import threshold than Australia.

Here’s SmartCompany’s import tax threshold cheat-sheet, listing what online shoppers pay after buying from overseas websites in many of the world’s developed economies. We couldn’t find any country with a tax-free threshold as high as ours, though we did find plenty of countries (Hong Kong, India) without similar taxes for both domestic goods and imports.

USA: The United States starts taxing overseas online purchases at $US200 ($AU219.08).

Canada: Canada has the world’s lowest threshold for tax-free imports. It adds taxes on online purchases worth more than $CA20 ($AU20.78)

New Zealand: Our friends across the Tasman start taxing goods at $NZ220 ($AU197.61)

European Union: Individual countries can charge different value added taxes, but goods costing EUR 150 ($AU222.94) are duty-free

UK: Value added tax (their GST) kicks in at online purchases worth £15 ($AU26.64)

South Korea: South Korea, on the other hand, begins taxing online purchases at KRW150,000 ($AU154.94)

Singapore:  GST is waived on goods worth below SGD400 ($AU349.89)

UAE: Tax-free up to 500 AED ($AU149.03)

Russia: Tax kicks in at shipments with value over 5000 RUB ($AU166.28)