What am I reading today? 25 April 2017

Shelves of books in Stockholm library
What am I reading today?

Here are some of the stories that caught my attention in the past week or so:

Update on the “Amazon.com Tax” and “Netflix Tax” changes to Australian GST

Further to my previous article, on 16 February 2017 the Commonwealth Government introduced a bill to Parliament that seeks to change the law to extend the Australian GST to so-called “low value” imports (under $1,000) of physical goods, from 1 July 20172018*.

The first Senate hearings into the Bill were held on 21 April. Perhaps unsurprisingly, the Senate has heard from vendors and platforms such as eBay, Alibaba and Amazon, and even the transportation & logistics companies, that none

of whom want the administrative burden (cost and complexity) of having to determine whether and how much GST they need to collect on behalf of overseas retailers.

The “vendor registration model” for low-value goods is in line with the one for the Government’s proposed ‘Netflix Tax’. That would require offshore vendors to register and account for GST on the supply of things other than goods and real property to Australian consumers, also from 1 July 2017.

Meanwhile, the ATO will not rule out using its own website blocking powers to enforce GST collection by preventing Australian customers from visiting those retailers or platforms. Unless this is resolved, it looks as though [as usual?] the Australian consumer will suffer.

* On 26 June 2017, Parliament passed the Treasury Laws Amendment (GST Low Value Goods) Act 2017 (Cth) to remove the “low value goods exemption” (under Australia’s GST legislation) on goods imported into Australia, with effect from 1 July 2018. This note was updated 16 August 2017 to reflect this change.

Broadband and Internet

Net neutrality has taken a big step forward in Canada, with the CRTC ruling against Videotron’s zero-rated music streaming service, and releasing a 4-point code for evaluating whether a service is net-neutral. Michael Geist and Ars Technica each have articles discussing the implications of the CRTC decision.

Privacy

On the privacy and online tracking front, US consumers are suing Bose for allegedly tracking and selling the listening habits of its headphone users.

Similarly, the newsletter unsubscribe service Unroll.me is selling its users’ information. In November 2014, market research company Slice Intelligence acquired Unroll.me. That purchase seems to have gone unnoticed by most users until this week, after the NY Times revealed that Slice had analysed Lyft receipt data in the inboxes of Unroll.me users, and on-sold the aggregate data to Lyft’s competitor, Uber.

Australia’s “Amazon.com” tax

The Australian Treasurer recently announced that Australian State and Territory treasurers have agreed the GST should apply to cover online transactions where overseas suppliers sell goods under AU$1,000 to Australian consumers. Call it the “Amazon.com tax”?

Australia Post delivery van
Australia Post delivery van (by OSX (own work) [Public domain], via Wikimedia Commons)
This mirrors the recent proposal to apply GST to supplies of digital products and services from overseas providers to Australian consumers, the so-called “Netflix tax” (see my previous post).

Why?

In Government speak, the change would “promote greater integrity in the tax system” and to help to “level the playing field” for Australian retailers.

How would this be done?

The proposed approach for collecting the GST on imported goods is to reduce or remove the “low value importation threshold” for goods from its current level of A$1000 to say, A$20 or even zero.

Also to rely on overseas suppliers registering for, collecting and remitting the Australian GST. Presumably the latter requirement is aimed at minimising the compliance costs for collecting the GST on these imported goods.

When would this happen?

The Government has yet to release any draft legislation, but the Treasurer’s announcement indicated the new GST arrangements would start from 1 July 2017 (which would match the expected start date for proposed changes to inbound digital supplies), or possibly sooner.

What should overseas suppliers do?

Overseas suppliers who have Australian turnover over A$75,000 or more would need to register for and charge Australian GST (currently 10%, but could rise to say 15%).

For the moment, these suppliers should (if not already) change their sales terms to allow them to “gross up” the purchase price by an additional amount on account of Australian GST. This would align with the usual contractual practice for GST on onshore sales.

Of course, until we see the draft legislation a number of questions will remain unanswered. Some of these are:

  • Will an overseas supplier who sells through a shared platform (e.g. Amazon.com) need to register for Australian GST, or will that privilege fall to Amazon itself?
  • What “supplies” (in GST language) will go towards the AU$75,000 registration threshold?
  • How will an overseas supplier work out the customs value (or “CIF value”) of their goods, in order to charge collect and remit the correct amount of GST?

My 2 cents worth

On the one hand, I hope this change (presuming it goes through) meets the revenue forecast so that the Government can pay for personal and business tax cuts elsewhere. But I doubt it will play out that way.

This move smacks of pandering to big industry players. That is to say, I cannot recall buying anything online in order to save a merely 10-15%, as the savings are usually much higher.

Perhaps worse, this change would do nothing to motivate Australian onshore sellers to improve their game.

Presumably this change, if it is implemented by reducing or removing the low-value importation threshold, would also mean that Australians who travel overseas and return with new purchases might also need to pay GST on those purchases. (For the moment, let’s leave aside the question of whether the goods purchased overseas have become the shopper’s domestic property at the time they are brought into Australia.)

What do you think? Would needing to pay an extra 10% change your buying behaviour?

Australia’s “Netflix” tax

Taxes signpost
Recently the Australian treasurer Joe Hockey announced that the Australian Government is considering extending the Goods and Services Tax to also cover intangible services such as internet streaming (eg Netflix), music downloads (eg iTunes) and e-books (eg Kobo and Amazon) that are sold into Australia. This could make buying online services 10% more expensive.

Generally, no GST is payable on sales other than goods or real property by overseas sellers to Australian to private buyers. But if the Government’s proposed “Netflix tax” becomes law, GST would apply to overseas sellers’ “supplies” of music or video streaming and downloads (or the legit/legal ones, at least!) and other internet-delivered services to Aussie consumers.

Why do this? The Treasurer says that this is an “integrity measure” for Australia’s tax base, and in line with the OECD position that that GST should be charged at the source regardless of where the supplier is based. Other proposals we’ve heard include raising the GST rate (currently 10%) or lowering the low-value threshold for imported goods (currently AU$1,000) but these might be more politically challenging or simply cost too much.

What would this mean?
For consumers – The price you pay for streaming services and downloads could go up by as much as 10%. And while I can’t recall hearing anyone specifically naming Apple’s AppStore or Google Play in this context, I see no reason app sales or even cloud-based services would be excluded.

For off-shore sellers – There would be many practical problems in trying to collect GST from an overseas seller, though arguably this might be easier if you sell through a centralised online middle-man like a Google Play or Apple’s AppStore, or somehow the tax gets collected from the customer directly. But generally as a seller you could be required to remit GST from your sales to Australian customers. So unless you agree to give up 10% of your selling price from Aussie customers you might think about adding a GST “gross-up” clause to your sales contracts, to allow you to collect an additional amount for GST from your customers. As always, consult a lawyer 🙂