UNSW Business School

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1 UNSW Business School School of Taxation & Business Law The Future of Australia s GST: Good Design for the Real World Wednesday, 16 September 2015 TTPI, Crawford School of Public Policy, ANU Panel: Integrity of the GST Base in the Global Digital Economy Imports of low-value goods Dale Boccabella Associate Professor of Taxation Law School of Taxation & Business Law (Atax) UNSW Business School The University of New South Wales Sydney, Australia 1. Introduction (and Conclusion)

2 1.1 Broad policy decision: 1.2 Australia is not alone in looking at this area: 1.3 Tentative conclusion: 2. Topic 2.1 Low value imported goods: 2.2 Business to consumer (B2C) supplies: 3. Current Rule, Customs Duty Rule, Border Control Charges 2

3 3.1 Rule: 3.2 Border processing charges: 4. Low Value Imports are a Significant Source of Consumption in Australia 4.1 Low value imports represent significant amount of private final consumption expenditure in Australia: 4.2 Main items of low value goods: 4.3 Tax foregone: 5. Broad Policy Decision has been made to Eliminate the Tax- 3

4 Free Threshold (i.e. no threshold) 5.1 Decision: 5.2 In principle, decision is correct: 5.3 Vendor registration model: 5.4 No further details: 6. Implementation of the New Policy (New Rule) 4

5 6.1 Challenge: 6.2 Legislative change: Change of policy: Power to legislate: Announcement is silent on customs duty exemption: 6.3 Enforcement: Assumption that a high degree of compliance is wanted: Power to enforce: Foreign supplier is not on the same footing as domestic supplier: Foreign courts will not assist: 7. Co-operation from Foreign Tax Agencies (and Foreign 5

6 Courts) 7.1 Overview: Importance of these agreements and how they apply in practice: Other miscellaneous instruments: 7.2 Categories of agreements: Overview: Double tax agreements (income tax): Exchange of information articles: Major limitation for present purposes: Exceptions: Assistance in collection of taxes articles: 6

7 Exceptions: What is the assistance? Collection: Conserving Assets: Examples of qualifications to rendering assistance: Costs: Tax information exchange agreements (TIEAs) 7

8 Overview: Broad features: Exchange of information: Taxes covered: Duty to get information not in possession of requested country: Exception: Examples of qualifications to rendering assistance: Tax examinations (audits) abroad: Costs: What is missing from the TIEAs? Collection: Convention on Mutual Administrative Assistance in Tax 8

9 Matters Overview and countries covered: Broad features: Taxes covered: Exchange of information: Service of documents: Assistance in recovery: Collection: Conserving Assets: Examples of qualifications to rendering assistance: Costs: Miscellaneous foreign cooperation mechanisms 9

10 Mixture of regimes that may assist the ATO in collecting tax from a foreigner: Foreign service of documents, notices, etc: Trustee in bankruptcy or liquidator: Foreign judgment enforcement scheme: Standard for automatic exchange of financial account information in tax matters 8. Comments and Analysis 10

11 8.1 First best solution is desirable Question: Answer: What does this system look like? Taxpayer self-assessment: ATO audit function and enforcement function: 8.2 Is the foreign supplier situation like the domestic supplier situation? (i) Customs barrier: (ii) ATO audit and compliance checking function: (iii) ATO use of court system to collect properly raised GST liabilities: 8.3 Do Australia s tax cooperation agreements fill the void? 11

12 Customs barrier: ATO audit, compliance and enforcement function: 8.4 Benchmarking compliance costs, administration costs and compliance ratios: 8.4 Degree of voluntary compliance: Compliance dividend from supplier s reputation: Cannot rely largely on voluntary compliance: 8.5 Compulsory registration turnover threshold: 8.6 Simplified and clear measures may be important: General structure of Australia s GST would be simple, in any event, as it applies to a foreign supplier: Consistent with what other countries require of the foreign supplier: Location of customer: Categorising supplies: 12

13 8.6.5 Miscellaneous issues: Use of third party service providers: One-off grant to help with set-up for Australian GST registration costs: 8.7 Differential treatment of business to consumer (B2C) supplies and business to business (B2B) supplies: 8.8 Transition point between the foreign vendor registration model and the revenue agency full assessment model: 8.9 Another tax reporting and collection obligation for foreign supplier: 8.10 Compliance dividend from coercion mechanisms under 13

14 Australia s cooperation agreements: Constraints: Taxpayer may not be in a jurisdiction with which we have an agreement: Taxpayer may be in jurisdiction with which we have an agreement, but it does not cover GST: ATO hesitation in seeking assistance: Application for assistance is denied: Processes will improve over time: In light of above, it is hard to see how the cooperative agreements are going to achieve high levels of compliance: 8.11 To increase compliance rates, Australia will need a 14

15 backup or backstop regime: Current customs regime is a revenue agency assessment model: Brief description of customs processes, including the tax collection process: Goods coming into Australia through the international mail stream: Goods coming in through express carriers as cargo: Customs backup role would be different to current role: Key role would is to identify those goods that have not had GST paid on them: Collecting tax at the border is time consuming and resource intensive: Faster border processing or priority processing of tax paid goods: Supplies from suppliers below the compulsory registration turnover threshold should not be treated as untaxed goods : 9. Other Collection and Enforcement Aids 15

16 9.1 Third parties to transaction: 9.2 Supplier s home country revenue agency: 10. Conclusion (and Closing Comments) End of Document 16