The extract below is from Chris Berg and my submission to to Senate inquiry.
To highlight the absurdity of the Bill, we make use of one of the examples set out in the Explanatory Memorandum (pg. 21).
Wei is a resident of Hong Kong who purchases a piece of artwork valued at $700 from a supplier in Vietnam. The supplier arranges for the delivery of the artwork to his niece Li who lives in Australia.
A supply of goods is a supply of low value goods if the customs value would have been $1,000 or less at the time when the consideration for the supply is first agreed. The artwork has a customs value of $700 and is therefore a low value good. The supply of this low value good is connected to the [Indirect Tax Zone], because it is a supply of a low value good that is purchased by a consumer and brought to the [Indirect Tax Zone] with the assistance of the supplier. Wei is not registered for GST and is therefore a consumer for the purposes of the GST law. The geographical location of Wei, being outside Australia, is irrelevant.
Accordingly, the supply of the artwork is connected with the [Indirect Tax Zone].
At present the gift to Li is GST-free. It is proposed that the GST should apply to the gift. Yet neither the artist nor the purchaser is resident in Australia. Clearly the government have decided that having the gift held at Customs until Le pays the A$70 is neither financially viable nor practical. If Wei were to travel to Australia bringing the gift with him, it would remain GST-free and similarly were he ask a family member or friend to bring the gift to Australia it would also remain GST-free. It becomes taxable simply because it was brought to Australia with the assistance of the seller. The point to understand is that the tax liability is generated by the mechanism whereby the good or service enters Australia. (In this instance the artwork becomes taxable in Australia depending upon whether a related service, i.e. the transport of the artwork, is offered by the supplier.)
Now consider whether the artwork would attract GST if it were sold in Australia. If it was bought from a for-profit business with a turnover in excess of A$75,000 it would attract the GST. Yet if it were purchased from an artist with an income of less than $75,000 it would be GST-free. A Vietnamese artist with an income of greater than A$75,000 would be a wealthy artist indeed. The next point to understand then, is that this new tax brings foreigners into the Australian GST tax system where Australians would be exempted. This constitutes a discriminatory tax on foreigners that would not equally apply to Australians.
Imagine now that Wei bought the artwork from the Vietnamese supplier over an electronic distribution platform. Imagine further that the electronic distribution platform is a reputable business located in, say, the United States. This US firm is now liable for the Australian GST because a Hong Kong Chinese national traded with a Vietnamese national who transported a A$700 artwork as a gift to Australia. Again, if the artwork were transported to Australia via a family member or friend, the US electronic distribution platform would not be liable for the GST. The operation of the tax seems very arbitrary, and somewhat voluntary. Ironically, the new tax is being promoted as a mechanism to overcome arbitrariness. As Myer chairman Paul McClintock has argued:
It’s absolutely crazy that you pay different tax depending on where you buy a product from,” Mr McClintock told the Financial Review. “We are now in a completely seamless market. You can sit in your home and order from one site and it’s taxed, and another and it isn’t. That’s balmy. It’s outrageous.
It is not clear, from the government’s own example, that this new tax resolves the outrageous and balmy situation that Mr McClintock identifies. If anything it is now worse. (As an aside, we suspect Mr McClintock would never agree that his landlord should be responsible Myer’s tax liabilities – yet that is what this new tax would imply were applied to his business).
Then there are questions as to the administration of the new tax. Let us assume for arguments sake that the reputable US electronic distribution platform does (somehow) collect the GST from Wei and passes it onto the Australian Taxation Office. Then the new tax will have operated as planned. But what happens if Wei and the Vietnamese supplier transact via a disreputable electronic distribution platform? This electronic distribution platform could, for example, simply not collect the GST or it could collect the GST and not transmit it to the Australian Taxation Office. What mechanism would the Australian Taxation Office have to enforce compliance with Australian law? How would the Australian Tax Office even know that a tax fraud had occurred?
Compliance with this law appears to be somewhat voluntary and arbitrary. The Australian Tax Office has no authority or power to audit any of the participants to the transaction nor is it likely to have any authority or power to audit the electronic distribution platform. To be clear – the example above is one given by the government to illustrate how the new tax is to operate. The fact that it is so easily reduced to an absurdity demonstrates the fragility of the rationale for the tax.