Background
Low value threshold arrangements have certainly taken some twists and turns over many years.
I recall in my early days as a Customs officer the $250 (duty & sales tax under $50) "Screen Free" threshold was introduced to reduce the burden on the entry processing environment. At that time Customs' air freight screeners would complete the assessment process.
During the late 1990s, Customs introduced a "cost recovery" regime including a fee payable for each screen free. The express carriers had an arrangement whereby they did not have to pay this fee but to compensate would have an increased cost recovery fee on their entries. At this time, High Volume Low Value (HVLV) processes were introduced whereby alternate cost recovery, reporting and clearance arrangements were established for entities importing bulk low value consignments.
As a part of the Integrated Cargo System (ICS) implementation in October 2005, the low value threshold was increased meaning that individual consignments (other than certain prescribed goods) under the value of $1000 were exempt from paying import duty or GST. This aligned arrangements across air, sea and postal environments. The assessment was no longer completed by Customs but was performed by industry via a Self Assessment Clearance (SAC) process. Cost recovery on SACs was also removed and cross-subsidised through the Full Import Declaration (FID) process.
Over the last seven years we have experienced enormous change in consumer buying behaviours. Online shopping has become increasingly attractive for Australian consumers for its convenience, commodity availability globally, tax free arrangements and complimented by a sustained strong Australian dollar.
Low Value Parcel Processing Taskforce
Australian retailers have highlighted difficulties competing with the online environment and have identified that the low value threshold arrangements provide an unfair advantage to that sector of commerce.
This was one of several factors resulting in the Federal Government involving the Productivity Commission report Economic Structure and Performance of the Australian Retail Industry. Recommendation 7.1 of that report suggested that there are strong in principle grounds to lower the low value threshold exemption for GST and duty on imported goods where it is cost-effective to do so.
As a result, the Federal Government commissioned the Low Value Parcel Processing Taskforce (the Taskforce) to undertake a comprehensive investigation of low value import processing.
In my previous industry association representative role, I had the privilege to meet with Taskforce members (Bruce Cohen, Jim Marshall and Caroline Chan) on several occasions providing input on historical issues, ICS technical specifications and operational issues. It is pleasing to note that many key issues discussed have been noted in the final Taskforce report released to Treasury in July 2012.
The Taskforce recommendations
The 290 page report provides the reform context, determination and initial assessment of potential solutions, detailed assessment of potential reforms and proposed reform pathway.
18 recommendations are listed on pages 14 – 19 of the report and are well worth reading and digesting. Many of the recommendations provide a longer term vision of how to best deal with the low value environment whilst others have short to medium term impacts.
Below are some interesting points to note:
The Taskforce have highlighted complexities in the postal environment as against the more sophisticated express courier arrangements. Longer term solutions will be monitored in terms international mail stream initiatives.
It is quite possible that duty will not be collected on low value items. The Taskforce have highlighted the complexity in accurately classifying import consignments to determine appropriate duty collection and also justified this approach by noting "the trend for duty rates to be lowered and / or abolished in the future".
The Taskforce is extremely mindful on the need to collect GST to support State and Territory revenue. In order to simplify the revenue collection process, it is quite possible that the value of taxable importation calculation will not include duty, freight or insurance components.
The Taskforce has identified a range of potential revenue collection and cost recovery models. There is some doubt as to whether the ICS will be able to accommodate these changes or whether external ICT development will be required.
So what will the new low threshold amount be?
The Taskforce report keeps us guessing on this indicating only that it should be set above $0 and below $1000.
One thing is for sure, there is a lot more water to pass under this bridge until we know all of the answers. The taskforce gives us a few clues and sets an excellent platform to allow Government to further engage with all stakeholders to introduce further reforms.
There will clearly be extensive industry engagement in the months (and years) ahead as the reforms are established and introduced. FTA will remain focussed on this issue and will keep subscribers at the cutting edge of these changes.
Paul Zalai - FTA