As readers would be aware, the Productivity Commission
("Commission") has been undertaking a
review into the "Economic structure and performance of the
Australian retail industry". The review was initiated by
wide-ranging complaints by the Australian retail industry as to
difficulties it was experiencing. Some of those difficulties were
alleged to be the high level of regulation in the operation of the
retail industry and constraints on workplace flexibility. However,
for the Customs, Trade and Transport industry, one issue of
particular interest was the allegation that the current low value
threshold ("LVT") for exemptions from
GST and duty on imports of $1,000 was unfair and significantly
affecting the business of the retail industry.
On 4 August 2011 the Productivity Commission released its
interim report ("Report") into the
economic structure and performance of the Australian retail
For the Customs, Trade and Transport industry, the main issue
relates of the future of the LVT. The Commission appears to
conditionally recommend that the LVT be reduced. In principle, the
Commission says that the current LVT is only a minor part of the
competition story. However, given that the GST is a broad-based
consumption tax, the Commission recommends that the LVT
should be reduced to a low level to ensure
"tax neutrality" in the future. However, the Commission
points out that the processes for collecting taxes and duties at
the border are not effective and that as the LVT is reduced the
complexity and cost of recovering those amounts increases so that
at very low LVT the cost of collection would exceed tax revenue by
3 to 1. The Commission points out that such a cost impost on both
importing businesses and consumers is unacceptable even without
considering additional costs such as delay. Accordingly, the
Commission recommends that the processing systems for incoming
parcels to Australia needs to improve (as has done in other
countries) and only then should the Federal Government investigate
a way to reduce the LVT in a cost-effective way.
Clearly, this poses a challenge for the Federal Government and
its border agencies whose current inclination is to have a
comprehensive risk-based process to analyse imports of parcels
especially those carried by express carriers. Many international
authorities have also identified the revenue environmental and
security risks arising out of packages arriving through small
packages in express carriers or by the post. Accordingly, it will
be interesting to identify how the border agencies can streamline
and reduce the cost of reviewing incoming parcels at the border for
security, quarantine and revenue concerns in a way which would
support a reduction in the LVT.
At the same time, any reduction in the LVT might create risks
for the Federal Government in international negotiations. Many of
our Free Trade Agreements with trading partners provide that there
should be no increases in taxation on goods from those countries. A
reduction in the LVT could be construed as the imposition of
another tax on imports from those trading partners contrary to the
spirit or the terms of those FTAs.
The Report by the Commission is only an interim report and it
will be instructive to see the full response from the Federal
Government and its various border agencies as well as from the
retail industry. The initial response last evening from the Federal
Government was that there would be no immediate reduction in the
LVT and that any future reduction would only follow a review and
subsequent introduction of reforms to make the collection of
revenue tax-effective while protecting normal review by border
agencies for security and public safety.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Depending on the type of ETP, the employee's age and years of service, the amount may be taxed in various different ways.
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