Paradise lost – from MHD magazine

Dr Raymon Krishnan and Ms Renette Lee

Starting 1 July, e-commerce giant Amazon stopped shipping directly to Australian addresses from its US and other international sites. Instead, a reduced but growing selection of goods retailed by Amazon on its US site is listed on Amazon.au, the local site of the e-commerce multinational corporation.
Amidst outcry from online shopping enthusiasts, the online giant’s move was in response to a decision by the Australian government to impose a 10 per cent tax on all imported goods into Australia, i.e. the removal of its De Minimis threshold (DMT) for consumption tax. Businesses with a local annual turnover of AU$75,000 or more are required to register with the Australian Taxation Office.
The DMT is a government-imposed limit under which imports are exempted from taxes, import charges and most customs duties, with limited clearance processes and data requirements. Previously, the tax was imposed only on imported items worth more than AU$1,000; imported goods below this amount remained duty-free up until 1 July 2018.

“Supporters of a DMT removal have commonly cited lost tax revenue from e-commerce as an issue.”

The moves attempt to maximise tax revenue from what governments consider a major untapped source: digital trade. E-commerce is certainly a potential avenue for garnering additional tax revenue, especially since the worldwide e-commerce market is expected to grow to USD$4.479 trillion by 2021. Yet, it is essential to consider that the boom of e-commerce has been aided by the very absence of rigorous taxation policies across digital borders.
Australia’s DMT removal signifies an unusual measure of protectionism in the age of e-commerce; it is a stance that many other countries are considering adopting. This presents a unique situation with regards to DMT, as technology giants (like Amazon) striving for liberalisation stand at crossroads with governments looking to capitalise on the digital economy.
So, why may a DMT removal be detrimental in the long run?
Costs outweigh potential revenue 
Supporters of a DMT removal have commonly cited lost tax revenue from e-commerce as an issue. For example, according to the Australian government, this exclusion on taxing low-value imports has cost Australia roughly AUD 390 million annually since 2013-14, and grows exponentially every year.
What we should note, however, is that there is no certainty that revenue will outweigh expenditure required for policy implementation. While there is no border processing or enforcement required under the Australian legislation, it seems inevitable that the government will need to address these shortcomings in the model over time, requiring investments in systems, staff and infrastructure to ensure overseas vendors comply with the law.
The European Commission announced plans to tax low-value imports in December 2016, intending to improve cross-border VAT rules in light of the burgeoning e-commerce market. However, studies evaluated that instead of improving growth, a removal of the VAT exemption on low-value imports in Europe would actually impede the growth of e-commerce.
Customs, e-sellers and delivery personnel would face the burden of additional screening, compliance and delivery time for a high volume of small-value imports, with additional processing cost estimated to amount to a hefty €1 billion. In addition, paperwork completion adds to the tedious process, due to a lack in consistency for each country’s administrative procedures.
From an operational point of view, a tax exemption on low-value goods complicates processes. As costs of collecting tax for low-value items may outweigh potential maximum revenue collected through tax, the removal of the tax exemption directly runs counter to basic taxation principles.
Instead of lamenting over e-commerce earnings not yielded, a DMT should be approached in a practical perspective – in that its implementation reduces cross-border complications at customs, and also allows authorities to concentrate resources on more pertinent issues such as sieving out illegal goods and fraudulent items.
Unequal playing field for smaller firms
Supporters of e-commerce tax often cite the entrance of global e-commerce giants resulting in drastic reductions in domestic consumption and profit margins. While the move attempts to equalise domestic and foreign retailers, the greater issue at stake is the widening chasm between small and large firms, with small businesses ultimately placed at a severe disadvantage.
Small and large businesses alike benefit from DMT. Regardless of their size, customs exemptions on low-value goods would reduce overall costs for firms. Furthermore, certain small businesses particularly rely on tax exemptions to have a competitive volume of sales against large businesses.
The removal of a DMT will mean a smaller firm being subjected to the same taxes and compliance costs as large companies. Unlike bigger firms that have advantages of economies of scale yielded from bulk purchases, small firms are unable to capitalise on cost savings. The creation of artificial barriers for small e-sellers to compete is detrimental, especially when small- and medium-sized enterprises (SME) account for over 95% of economic activity in many countries.
The qualifying AUD$75,000 for registration with the Australian Taxation Office continues further distortion between small and large businesses. Cautious traders in smaller firms who believe they are at risk will register to pay taxes, incurring additional costs. Small traders who choose not to register, but have an unexpected upsurge in sales, will be burdened with unbudgeted tax liability, and possibly be fined for failure to comply with taxation rules. This places smaller firms at a competitive disadvantage, where tax could be greater than their profit margin on already sold goods. Further, small traders selling through tax-compliant marketplaces will have GST applied from the first dollar of their sales, whereas their competitors selling direct to Australian customers will not. This will distort the market, as small traders looking to harness the tools and capabilities of marketplaces will be placed at a price disadvantage to non-compliant competitors.
For small e-commerce business owners who regularly import, a lack of sales tax can make the distinction between cessation and continuity; adhering to compliance costs equates to unnecessary revenue loss that small businesses can hardly afford.
Perhaps many legislators are looking at the issue on DMT from an erroneous perspective. Instead of looking at how much tax revenue is forsaken under a DMT when goods are imported into a country, a perspective to adopt is looking at how domestic firms – especially SME and home-grown firms – have much more to lose when exporting into a country without a DMT.
As an example, many smaller Australian firms export globally. With Australia removing DMT, countries that import Australian products could retaliate by removing their DMT as well, or worse, target Australia’s actions by specifically removing DMT on Australian products.
Tit-for-tat moves may sound petty, but what may unfold is merely borrowing from a precedence set in the global stage vis-à-vis the US-China trade war.

Consumers lose out in the end
However, consumers would be the biggest losers with increased costs, reduced varieties or even the withdrawal of goods shipped in from abroad, as seen from the Amazon example.
A high DMT decreases administrative and processing costs, encouraging more e-commerce retailers and suppliers to expand their businesses offshore and diversify their range of products.
In addition, a high DMT also eases entry of imports, enabling better quality of service, such as faster delivery and returns. A no-questions asked returns policy is something many e-commerce platforms tout. The removal of DMT will complicate the returns process; tax would already have been paid on products being imported, and the likelihood of getting a tax refund is low due to cumbersome processes. For many a small business owner or e-commerce practitioner, efficient delivery and returns creates a distinguishable brand for them to ensure customer loyalty.

“A deferral to remove the DMT is worthy of further consideration until a balanced approach is found.”

Even for larger firms, administration of an e-commerce tax is not favourable for fear of losing customers. For instance, Matches Fashion, a luxury retailer for goods like Gucci and Prada, has absorbed Australia’s online sales tax for consumers as an advertising tactic: customers are informed of the company’s full subsidy upon checkout of purchases.
Other retail giants, like Marks & Spencer from the UK and US fashion retailer J.Crew, are examples of companies that chose not to add the Australian sales tax to final prices of their goods, choosing to conceal their tax obligations at the expense of keeping customers satisfied with low prices. It remains to be seen how the Australian Tax Office can successfully enforce taxation laws on imports in the long run.
No easy solution
For the legislator, the intent to capitalise on untapped e-commerce revenue appears to be a good idea. The reality, however, is fraught with complications that extend beyond unhappy suppliers and consumers.
For plenty of government and trade officials worldwide, a deferral to remove the DMT is worthy of further consideration until a balanced approach is found.
For Australia, this marks the misplacement of dreams for digital trade.
Dr Raymon Krishnan is the president of the Logistics & Supply Chain Management Society and Secretary-General of the Asia Business Trade Association. He is also a Director at The Asian Trade Centre.
Ms Renette Lee is a final-year sociology student from the University at Buffalo, who concluded an internship with the Asian Trade Centre. She takes a keen interest in the understanding of social relations through public and trade policies.
 

Brambles estimates $160+M tax relief from US reforms

Australian-headquartered global supply-chain logistics group Brambles has announced that is it considering the implications of US President Donald Trump’s recent tax cuts in the Tax Cuts and Jobs Act will have on its US business.
“Brambles’ current estimate, which is subject to further analysis and clarification of a number of items, is that there will be a one-time non-cash benefit as at 31 December 2017 to the Group’s income tax expense of between US$125m ($160 million) and US$155m ($200 million),” the company wrote in a statement.
The change reflects a reduction in the Brambles’ US net deferred tax liability due to the decrease in the US federal corporate tax rate from 35 per cent to 21 per cent.
The company noted that a number of measures in the tax reform could negatively impact Brambles, though its preliminary assessment of the total tax reform package is that any change to its effective tax rate is unlikely to be material.
“Brambles will provide an update to the market on its assessment of the impact of the USA tax law change on its deferred tax position, and any potential impact on the future effective tax rate of the Group, when it releases its first-half results on 19 February 2018,” the company added.

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Road Freight NSW to operate as independent body

Road Freight NSW (RFNSW) will become an independent organisation from 1 January 2018 “to better serve its New South Wales membership base.”
The organisation began as ATA NSW in 2007 and changed its name to Road Freight NSW in 2015.
It is currently a subsidiary of the Australian Trucking Association (ATA), and from January will continue to be a member of the organisation.
RFNSW will now work independently to campaign on policies affecting the New South Wales transport sector, primarily heavy-vehicle safety, the regulatory regimes stifling business growth and the unwarranted surcharges, like stevedores’ port taxes, being imposed on carriers.
Road Freight NSW Chairman Jon Luff said that while the organisation is committed to policy development nationally, there is a need for an independent body in New South Wales to allow strong advocacy at a state level.
“We will be the local voice for local truck carriers, providing support and advocacy on behalf of our members, who now include some of the country’s largest transport companies,” he said.
“We have enjoyed our collaboration with the ATA and its board, directors and General Council. It’s an exciting time for Road Freight NSW and our membership. It will prove to be a game changer for the sector.”
ATA Chair Geoff Crouch said the name Road Freight NSW reflects the organisation’s independent and authoritative viewpoint.
“The move underscores the strength of Road Freight NSW and the vital advocacy role it plays across the state,” he said. “It will enable the ATA to better support member-based organisations throughout Australia, and to represent members across all tiers of government.
“We operate in a complex regulatory environment and the issues vary across states. Having a member-owned and -operated organisation to represent local members is a big achievement, and critical so all voices can be heard.
“Strong advocacy is critical to our members, right across Australia.”

ATO determination concerns for owner-drivers

The Victorian Transport Association (ATA), the Australian Road Transport Industrial Organisation (ARTIO) and the Transport Workers Union TWU) are among industry groups concerned about a recent Australian Taxation Office (ATO) determination that will reduce the amount drivers can claim for travel on their tax returns.
ATO Determination TD 2017/19, issued on 3 July, has reduced the ‘reasonable amount’ that an owner-driver may claim for travel expenses without substantiation by $42.10, which translates to a 43 per cent reduction.
Peter Anderson, CEO, VTA, in his capacity as Secretary and Treasurer of the ARTIO, has written to the ATO to express concern about the lack of consultation with industry about the determination, along with the impact such a significant reduction will have on the individual drivers and their income.
“We are amazed the ATO has made such a far-reaching determination that will leave drivers and their families so significantly out-of-pocket without bothering to inform the industry,” Anderson said.
“Equally concerning are flow-on effects the determination will have on Enterprise Bargaining Agreements (EBAs) that had already factored in the previous rate. We have highlighted to the ATO that employers, who have had EBAs specifying amounts payable in these circumstances approved by the Fair Work Commission, could now be in breach of legal obligations because of the change.
“Regrettably, the impact of the ATO changing its view on what is a ‘reasonable amount’ for a driver to claim for a meal will be on their health and wellbeing because there is less money for them to spend on healthier foods, which usually cost more.”
The ARTIO has requested an urgent meeting with the ATO to discuss the determination, which it feels requires immediate review and amendment.

Discord over Government's new GST plan

From 1 July, imported purchases worth under $1,000 will incur GST charges, though there is some disagreement in the market over who should be collecting it.
E-retailer Amazon has hit out at the government’s decision to have sellers, the electronic distribution platform or the re-deliverer – depending on the nature of the transaction – collect the fee. According to The Guardian, the company has suggested that the poor design of this ‘vendor model’ plan will result in an “inherent disincentive” to comply.
In a submission, Amazon queried why the Government ignored a recommendation made by a previous government taskforce, advising that a ‘logistics model’ – whereby Australia Post, express carriers and freight forwarders collect the GST – be used.
“Logistics providers already have infrastructure in place to collect information on goods coming into Australia and have well-established processes for GST collection for goods valued at more than $1,000,” it said in the submission.
Australia Post welcomed the vendor model chosen by the Government, asserting in its own submission that it would be the most efficient way to impose the task, and to require Australia Post to collect the tax would render its parcels business “unviable.”
The postal service voiced its support of the Turnbull government’s proposed GST plan but noted that it hopes the tax will be imposed one year later.
“Any proposal involving collection of GST under a model that requires collection at the border is likely to render Australia Post mail and parcels business unviable in the current market of continuing and significant decline in mail volumes that have put severe strain on the financial position of the corporation,” the national post service’s submission said.
It adds that the cost to the Federal Government of requiring Australia Post to collect GST – approximately $900 million – would more than cancel out the $300 million they could hope to raise with the levy.

Freight association to advise UK Government on Brexit

On Wednesday 30 March UK Prime Minister Theresa May invoked Article 50 to begin negotiations for Britain’s exit from the European Union. The British International Freight Association (BIFA) – the trade body representing the UK’s freight forwarding companies – responded with a statement noting that speculation on the outcome of the move cannot yet be made, and the Association will aid the government in traversing the path ahead for trade.
“In the run up to the UK’s eventual exit we will be working with Government to try and ensure that the movement of the UK’s visible import and export trade does not become overburdened by over complicated trade procedures,” said Robert Keen, Director General, BIFA.
“Clearly there are significant areas of concern for our members, which are responsible for much of the physical movement of that trade, over the eventual outcome, including the physical infrastructure, trade arrangements and Customs practices that will be reviewed as part of the Brexit negotiations,” he added.
“I have already gone on the record to warn about the huge number of pundits offering solutions when nobody really knows what is likely to happen in reality.
“BIFA’s focus now will be presenting the views of our members to the various government departments that we deal with, as well as working with organisations such as the Confederation of British Industry and International Chamber of Commerce to make sure that all parties negotiating the post-Brexit landscape are fully aware of the potential challenges for which they will need to find solutions.”

Harvey Norman founder on Amazon in Australia: the battle plan

Gerry Harvey, one half of the founding duo behind household goods retailer Harvey Norman, recently spoke out against the rise of Amazon, the fall of small businesses and why he’s confident Harvey Norman will weather the storm.
Speaking to 9news’ Eddy Meyer, Harvey bemoaned the lack of corporate etiquette present in Amazon’s operating practices that have led to its success at the expense of smaller enterprises. “In America, it is regarded as a very poor corporate citizen,” he said. “It sent a lot of other retailers broke that used to employ people. They used to pay taxes. Amazon pays virtually no taxes, and they just put a lot of people out of business.”
On Amazon entering the Australian market, Harvey explained that he is not worried for his business’ survival, even though he doesn’t expect the online e-commerce giant to play fair. “For years they’ve been sending goods into Australia with no GST, and we all pay GST. We have been subsidising Amazon for years, now they’re coming here to try and send us all broke. They’re not going to send Harvey Norman broke, but they’re going to be a pain in the backside.”
Norman stated that key to his company’s continuing success will be the service customers receive in store, same-day home delivery and price matching. “We will be competitive with them come hell or high water,” he said. “We are not going to lie down for Amazon and we will still make good profits and pay taxes, which they won’t.”
Norman has no delusions about the battle ahead, “[These] are fighting words,” he told Meyer. “Amazon’s coming here, they’re fighting me, okay? Make no mistake – I’ve got a gun in my holster too.”

Big companies entrusted with own tax auditing

Large mining companies may avoid public scrutiny over their taxes if the Abbott government complies with calls for amendments to tax law.

The Australian Tax Office (ATO) is working towards a plan which will see 56 companies with a turnover of $100 million or more allowed to perform their own tax auditing, SMH reported.

The proposal has been met with widespread anger and criticism from government officials, unions and the public, however the ATO said feedback from taxpayers and industry was positive.

The system is called External Compliance Assurance Process (ECAP), which was proposed as a means to reduce costs after budget cuts by the Abbott government.

Under ECAP, large accounting firms will be able to perform audits on large companies, in a move that ATO staff said would be like “giving the keys to the vault to the thieves”.

The results of ECAP audits would not be publically accessible.

3000 ATO staff were sacked as a result of cuts by the Abbott government, and a further 1700 are expected to go by 2018.

Following the release of the Tax Justice Network report, an inquiry into tax avoidance and tax minimisation strategies has heard from a number of Australia’s top companies who are defending the amount of tax they pay.

The report suggested that of the ASX200 around 29 per cent had an effective e tax rate of 10 per cent or less, and 14 per cent of the companies had an effective tax rate of zero.

Glencore has said the Tax Justice Network report was not “reliable” or credible” and that they paid their fair share in taxes and royalties.

Last year Glencore were accused by the Sydney Morning Herald of failing to pay taxes for three years, in an article which was corrected to state that Glencore paid more than $400 million in the same period.

Rio Tinto said it has signed a compliance agreement with the Australian Tax Office which ascertains how much tax it has to pay, ahead of time.

Rio has requested an extension to the agreement for two years.

Woodside claimed it had an effective tax rate of 29.77 per cent, and also has a compliance agreement.

A report on the ECAP program will be released in March to determine if it will become permanent. 

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Minerals Council calls foul on “anti-mining” diesel tax

Minerals Council of Australia CEO Brendan Pearson will today insist that the government keep diesel tax breaks for companies operating in remote locations.

Pearson will appear before a senate committee today to defend the fuel credits scheme that provides tax breaks for the use of diesel in off-road capacities.

He will also reject arguments that miners already receive significant subsidies, and say that any call to scrap the tax break is part of a “thinly disguised anti-mining agenda”.

Diesel is widely used in all segments of the mining industry to fuel generators, heavy machinery and light vehicles, especially in remote locations.

Tax paid on the diesel used in such situations is currently refunded to companies, a scheme that has been in place for about sixty years for industries such as agriculture, manufacturing, health services, construction, as well as arts and recreation.

The fuel tax credit was reduced by six cents a litre as part of the carbon tax to put a price on the carbon content in diesel, which will be replaced if the carbon tax is repealed.

“Every year, the Productivity Commission conducts an exhaustive analysis of industry assistance. In the most recent … review concluded that budget and tariff assistance to the mining industry was negligible,” Pearson said.

Pearson will tell the inquiry the Commission of Audit is timely because Australia faces a budget repair challenge.

“But equally we need to recognise that the means by which fiscal repair is achieved will have a major bearing on growth, investment and job creation,” Pearson said.

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