State Treasurers Are Expected To Call For a Lower Threshold For Tax Free Imports

The Sydney Morning Herald has reported that calls to lower the $1000 tax free threshold for imported goods are expected to receive significant backing from the State Treasurers following a meeting earlier this week.

In the last 12 months the Government has received two reports concerning the tax free threshold and last week the GST Distribution Review handed its final report to Treasury.

The Government now appears to have plenty of information on which to make a decision, so it remains to be seen if there is any announcement.

Low Value Parcel Processing Taskforce Final Report

In December 2011 the Australian Government Productivity Commission reported on its inquiry into the Economic Structure and Performance of the Australian Retail Industry. The inquiry found there are strong in-principle grounds for the low value threshold (LVT) exemption for GST and duty on imported goods to be lowered significantly, to promote tax neutrality with domestic sales.

 

The report stated that the Government should not proceed to lower the LVT unless it can be demonstrated that it is cost effective to do so. As a result the Government commissioned the Low Value Parcel Processing Taskforce to investigate options to improve the efficiency of processing low value imported parcels.

On 6 September 2012, the Assistant Treasurer, the Hon David Bradbury MP, released the final report of the Low Value Parcel Processing Taskforce. While the Taskforce was not to recommend a level for the LVT, it has recommended a new and more efficient approach to processing low value parcels and states that a feasible target to establish parcel processing reforms would be 1 July 2014, and possibly earlier.

Based on the reforms, the Taskforce has estimated the collection costs across a range of LVTs as represented in the below extract from the report - click to enlarge:

 

It should be noted that the Taskforce's estimates do not include the collection of any applicable duty, only the collection of GST. This is due to to the complexity of duty arrangements, combined with the trend for duty rates to be lowered and/or abolished in the future. Therefore, the Taskforce recommends that the duty and GST low value thresholds be separated to facilitate a more efficient process for handling low value imports.

Based on the figures presented it appears that an LVT of $500 represents the lowest ratio between cost of collection and tax collected, while LVTs of approximately $100 and $900 are where the collection cost equals the tax collected.

As stated above, the in-principle case for lowering the LVT is to promote tax neutrality between imported consumer goods and those purchased domestically. If tax neutrality is acheived, goods purchased offshore and imported by consumers would be subject to the same tax that is applied to goods available locally.

One argument for lowering the LVT is to protect the local retail and wholesale industries which according to the Australian Bureau of Statistics, employ nearly 17% of the Australian workforce. This argument has its foundations in the fact that, according to the Tasksforce's interim report released in March 2012, 10.4 million parcels valued $1000 or less were imported into Australia in 2010-11, up 65% on 2006-7. On the other hand, the argument for a free market remains popular amongst consumers.

Regardless, the question now remains; what change, if any, will Parliament make to the LVT on the basis of the report? And, if a change is to be made, when will it be made?

What do you think?

Low Value Parcel Processing Taskforce - Final Report

The Australian Customs and Border Protection Service's Low Value Parcel Processing Taskforce will be handing their final report up to the Government on Tuesday the 31st of July.

Click the link to the Low Value Parcel Processing Taskforce for more information.

It is not known if or when the final report will be made public.