Threshold for online goods stays

THE federal government is laying the groundwork for a future cut in the $1000 GST-free threshold for goods bought from overseas online stores.

Assistant Treasurer David Bradbury said on Monday that the $1000 threshold was ''very high'' compared with overseas, and the government would start preparing ''business cases'' for changing the tax rules governing low-value goods purchased from overseas.

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Although it has ruled out cutting the threshold immediately and no final decision on the matter has been made, the government will commence a series of processes that would allow it to change the threshold. For instance, it will consider legal changes to encourage foreign companies to collect GST from Australians, and will kick off negotiations with the states on the contentious issue.

It expects more detailed information on the matter, which would inform its final decision on the threshold, late next year.

Mr Bradbury said domestic retailers should not be unfairly disadvantaged by the $1000 threshold, even if it was not the main reason many Australians shopped at overseas online stores. ''We are rejecting calls for an immediate reduction in the threshold but we do accept that there is a strong case in the interests of fairness and competitive tax neutrality that this issue be dealt with,'' he said.

In hindsight, Mr Bradbury said the Howard government's decision to set the threshold at $1000 in 2005 was the ''wrong call'', and had left Australia with one of the highest thresholds in the world.

Although domestic companies are disadvantaged by the rule, Australia Post and Customs lack the capacity to lower the threshold immediately without causing major headaches for the delivery of parcels.

Mr Bradbury said that lowering the threshold to $500 would require 1.23 million parcels to be processed every year, up from 20,000 now. Without reform of parcel processing there could be ''chaos at our borders'' if the threshold were suddenly dropped, he said.

Mr Bradbury made the comments as he unveiled the government's interim response to a Treasury taskforce that has examined the long-held gripe of retailers.

A review by the Productivity Commission last year gave support in principle for cutting the threshold, but found doing so would cost more to administer than it would raise in revenue.

Treasury has since taken a closer look at how to cut the cost of processing millions of incoming parcels, and recommended a number of changes that could allow the government to lower the threshold in the future.

In its interim response, the government accepted most recommendations and outlined various steps it would take before providing a final response next year.

It will start talks with the states about putting in extra funding for the extra cost of processing incoming parcels, and will consider calls that it change the laws to enable overseas firms to collect the GST from Australian customers.

The government will also introduce legislation separating the threshold for customs duty from that for GST, which would allow the threshold for GST to be lowered later if needed.

States receive all the $50 billion a year raised by the GST - but growth in tax collections has stalled in recent years, prompting state premiers to demand the threshold be lowered.

This story Threshold for online goods stays first appeared on The Sydney Morning Herald.