For those of you not in Australia, there is currently a campaign going on relating to the GST and on-line purchases.
- On-line purchases from overseas of less than $1000 are officially GST ‘free’;
- I suspect that a lot of on-line purchases above $1000 are effectively GST ‘free’ because the declared value for any official purposes is less than $1000;
- The bricks and mortar retailers do not like this and are threatening to set up their own overseas based web sites to avoid GST;
- More over, the bricks and mortar retailers want something ‘done’ (e.g. they also get the GST exemption on sales of $1000 or less); and
- The media seem to be vehemently against the retailers’ campaign so the campaign is going no-where fast.
On the latter point, an article by Terry McCrann is here.
McCrann is correct when he notes that such a campaign is unlikely to succeed. But the campaign is not silly. Using the internet to buy a product allows for either (legal) GST avoidance or (illegal) GST evasion. This creates an issue for both the bricks and mortar retailers (as competitors) and for the government (as tax collector).
The difficulty of tracking and taxing goods bought overseas using the internet means that unless the government is going to check a large number of parcels (or require freight companies to do so) and monitor on-line digital purchases, then internet-driven international trade will make it harder to levy domestic taxes on goods and services.
This is the opposite of history. In the middle ages, taxes on imports and exports were easy for a government to enforce. That is why they were so common. Goods had to move through ports and the government was there to check the goods and make sure taxes were paid. Navies made sure the boats didn’t move until the government was happy that it had got its share.
The internet, and digital commodities like music, video, eBooks, games, etc, make taxes at borders extremely difficult to enforce. Add in improvements to physical transport, so it is not that expensive to ship products from overseas to an individual customer, and ‘border taxes’ now look like a loser.
So while the retailers are the first to make a noise about differential tax treatment and the internet, the people that really should be paying attention are the government. As on-line commerce grows over the next decade it will be harder and harder for the government to track – and tax – goods and services.