The Australian Taxation Office (ATO) has warned overseas organisations selling to Australia that noncompliance with the proposed GST Low Value Goods legislation amendment may result in their websites being blocked.
The comments were made in response to a question posed by the Senate Economics Legislation Committee on Friday, which is looking into the Treasury Laws Amendment (GST Low Value Goods) Bill 2017 that will see goods under AU$1,000 sold via online retailers subject to GST collection.
With a compliance date set of July 1, 2017, the committee asked the ATO what its strategies were to detect and penalise those avoiding the laws. The ATO said it is banking on an overseas organisation’s “good will” and the possibility of reputational damage to prevent them from skirting the legislative requirement to collect GST on its platform.
“If we were to notify another jurisdiction that an organisation in their jurisdiction was deliberately not complying with a known regulation in Australia, then the revenue authorities in that jurisdiction would then have the information to know an organisation’s attitudes towards compliance,” an ATO representative said.
When asked about its enforcement strategies, the ATO said it had a “range of strategies”, which it agreed could result in overseas seller websites blocked from Australia.
“We think where we will have to apply these strategies will be in very limited circumstances and where they don’t [comply], we will work through a series of compliance strategies,” the ATO said.
“I’m aware the [website blocking] provision exists, the ATO hasn’t applied that provision previously, so at the end of the day we’d have to look at whatever was available to the ATO as we progress down the path of encouraging organisations to comply.”
The federal government has dug up over 3,000 overseas organisations it found to be selling in Australia that would be subject to the current GST collection proposal. The majority of sellers — 38 percent — hail from the United Kingdom, while the United States accounts for approximately 27 percent, followed by China and Hong Kong, which each account for 8 percent of the overseas seller total.
If passed, the new laws would come into effect for vendors selling over AU$75,000 worth of goods per annum,
“Most organisations that have an obligation to comply, will,” the ATO reiterated throughout its committee probe.
The government allocated AU$13.8 million over four years to administer and roll out the new legislation, and is expecting to pocket AU$300 million in revenue over a three-year period from such practice.
The government also expects the 3,000-something vendors it identified as selling to Australia to actively register with the ATO as a seller, a model online that marketplaces eBay, Alibaba, Etsy, and Amazon say is “unworkable”.
As raised by eBay, Alibaba, and Etsy throughout Friday’s hearing, the trio are not sellers: Neither own the goods sold on their respective platforms, nor do they sell or supply them. With the use of third-party payments systems such as PayPal, eBay said it isn’t even involved in the payment or shipping of any goods sold on its platform.
“We are different to online retailers … we merely connect buyers with sellers. We are an online version of Westfield,” eBay’s managing director for Australia and New Zealand said. “Just like Westfield, eBay is not in a position to collect GST from the sellers that sell on our platform.”
When addressing the committee, the ATO said it has approached the “main” international sellers already, and “liaised extensively” with them on the Bill. However, eBay has a different opinion on what extensive liaising looks like.
“The vendor registration model was announced in the federal Budget last year in a couple of sentences. When we read that we thought, ‘Right, vendor seller, not eBay’. But when we saw the draft Bill at the end of last year, we saw that there was the electronic distribution platforms included in that,” a spokeswoman for eBay said.
“To be very honest and very frank with you, the first that we actually saw of the final Bill was when it was introduced into the House of Representatives.”
She said eBay has been very open and clear to the Treasury, the ATO, and the customs authorities that it wanted a public consultation process on the matter.
“eBay has lodged a number of letters to government, we met with government in November at the highest levels of government including with the prime minister, and we lodged submissions in December … those submissions were not published on the commission’s website, which is of concern to us, and if anything they went even further down the path of trying to classify marketplaces who do not physically hold the goods as a seller a supplier of those goods,” the spokeswoman added.
Of concern to the committee — not just the online retail giants — is that the ATO has not said there will be wiggle room with the July 1 deadline, with the committee noting such a short timeframe is “virtually impossible”.
“From our perspective, it’s probably been one of the least open consultation processes that we’ve seen in recent years,” the eBay spokeswoman explained. “Certainly if you compare it to the Netflix tax, they were given a very lengthy period of time to determine how the actual Bill that was released on Budget night would apply to them and what they could do.
“What we’re being asked to do here is as the Bill was introduced into the House of Representatives in February, and we’re being asked to comply by 1 July — it’s near impossible.”
eBay’s managing director Jooman Park said he isn’t even sure his company can even build tax collection capabilities on its platform — especially when only for Australia — and said it would cause great disruption to the rest of its global business. He also said it would be coupled with significant investment, mostly likely at the cost of innovation.
eBay has been in Australia for 17 years and boasts 30,000 local businesses.
“Many are in regional and remote locations that otherwise could not access the global market. We want to keep investing in enabling these businesses, not in tax collection,” he said, adding that if the Bill passes in its current form, eBay may have to begin blocking Australian sellers.
According to eBay, even its customers understand it’s a marketplace, not an online retailer.
An Australian-based representative from Alibaba told the committee that the implementation of a vendor registration model is “unworkable” and “contrary to good international tax policy”, with a spokesperson saying he wouldn’t be surprised if overseas vendors stopped selling into Australia.
He also wished the ATO luck in handling Chinese sellers, noting the agency is not equipped to deal with them.
On a more serious note, the spokesperson said a platform for collection as required under the proposed Bill may not even be able to be applied to AliExpress — Alibaba’s international marketplace.
“If that were the case, we would have no choice but to geoblock Australian users from using the AliExpress platform,” he added.
Kevin Willis, director of global trade services at Amazon, said that in his 36 years of dealing in cross border compliance he has never come across a task of this magnitude.
“A lot of this has got to do with the IT infrastructure that is going to have to be built in, codified and linked, and continue to be updated and refreshed to make sure that we are linking the appropriate parties, identifying the appropriate parties, and in a marketplace, you can have re-deliverers who may be unknown in terms of where they are,” Willis explained.
With a platform boasting 90 percent in female sellers, and more than half of its total sellers operating businesses for the first time ever on its platform, Etsy calls itself an “onramp to entrepreneurship”.
However, an Etsy spokeswoman told the committee on Friday that there is a very high likelihood of Australian consumers being denied the opportunity to utilise its platform.
“We’re left with a number of unfavourable options. It’s absolutely our worst-case scenario that we would have to do it,” she said, noting that many people rely on Etsy for income. “Blocking them from being able to achieve a sale like that is frankly devastating.”