The New Red Tape - Managing Taxation for Online Retail
On Sunday, Treasurer Joe Hockey appeared on insiders and declared that a new threshold for the collection of GST on purchases from overseas was due for an overhaul. "It could, it may well go to zero (dollars),” he said on Monday morning.
This sounds like a logiical move given the current regime effectively imposes a 10% levy Australian-based businesses.
How would this work?
The essential idea, it seems, is to encourage the resident state to enforce online retailers to collect taxes on behalf of the Australian Government, and return those funds to Treasury. The mechanism, it seems, is going to arise out of G20 discussions that have apparently achieved a broad consensus that this could be a useful mechanism for revenue collection across all applicable jurisdictions.
What? That’s sounds unnecessarily complex!
It is. The history of digital retailing has been about selling niche products to the world. By setting up a simple online store, small businesses can talk to a global audience to develop new industries.
The proposed system flies In the face of this with swathes of red tape. The cost of compliance is prohibitive – there is a potential need to to manage complex tax arrangements across regions (take for example the European Union with 28 different states and 75 different sales tax rates). In similar schemes in other countries it has proved too much for many businesses to manage.
Isn’t this just making business harder?
It sounds like a good idea, because it makes Australian businesses once again competitive with online sales under $1,000.00. The Treasurer sounds rightly pleased. However, once you start following this strategy to its natural conclusion, all businesses will have to comply with all tax rates across all jurisdictions as more and more governments realise the advantage of the regime.
For SMEs, simplicity is the key. Every extra piece of compliance adds a burden out of proportion to that for large enterprise.
Since 1 January 2015, the UK Government has forced all businesses to charge VAT relevant to the buyers’ state on all sales of digital products. This has forced plenty of businesses to shut down or look at other options for managing the compliance burden.
What was the alternative?
Utilising large online shopfronts such as Amazon. The upside is that they manage all the collection and distribution of relevant taxes, however they charge a hefty commission for doing so. This can still make business uncompetitive due to the reduction in margin to maintain a competitive price.
What’s the solution?
That still remains to be seen. Businesses will have to look to lessons learned in other jurisdictions, but we’re still very concerned that, as the G20 recommendations kick in across more and more countries to collect their missing income, that doing business online will become increasingly complicated and inefficient.