Thank you. I’m delighted to be here at the 5th OECD Global Forum on Value Added Tax (VAT), or as we refer to it here in Australia, Goods and Services Tax (GST).
I’m pleased to welcome you all to Australia and to the beautiful garden city of Melbourne.
In particular, I would like to acknowledge and welcome Ludger Schuknecht, Deputy Secretary-General from the OECD.
Australia is proud of our long and close relationship with the OECD and the community that we have all created together.
We have collaborated on a variety of policies that have benefited billions of people around the world.
This Global Forum has been highly successful. It provides opportunities for nations to collaborate and develop solutions to ensure our tax systems adapt to some rapid changes in the world economy.
In this, the fifth meeting, the focus will be on the challenges and opportunities that digitalisation poses to our consumption tax systems as well as tackling the scourge of fraud and tax avoidance.
This morning, I intend to focus my remarks on the digitalisation aspect of the forum.
Firstly, I thought you’d be interested in hearing about the strength of the Australian economy.
Australia continues to grow faster than all of the G7 nations except the US. Our economy grew by 2.7 per cent in 2018, which is consistent with trend growth.
We’re on track to record our 28th consecutive year of annual economic growth.
The unemployment rate is at its lowest level in seven years.
Average real growth in government spending is at its lowest level in 50 years, while the proportion of working age Australians on welfare is at its lowest level in 30 years.
Nominal GDP continues at a strong rate, growing by 4.9 per cent in 2018 alone.
More than 1.2 million jobs have been created since the Coalition was elected in September 2013.
10 million Australians will benefit from personal tax relief. This Government has also provided tax relief for over 3.3 million small and medium businesses – who employ seven million Australians.
It is with the stronger Australian economy which has led to record funding for Australian hospitals, Medicare and a fully funded National Disability Insurance Scheme (NDIS).
Since 2013, the Australian Government has listed over 2,000 medicines, an average of around 31 PBS listings per month – or one each day – worth $10.6 billion.
The Government’s $75 billion, ten-year rolling Infrastructure Investment Program is delivering across the country, building major highway upgrades, local road projects, Inland Rail and a new airport.
New opportunities have been created for businesses through Free Trade Agreements with, Indonesia, Korea, Japan and China as well as the Trans-Pacific Partnership.
Digitalisation as a topic extends far beyond tax.
At its simplest, digitalisation happens wherever things, activities or processes move from the physical, analogue world to the virtual world.
We can see this process happening everywhere – from business, to sport, government administration, banking and shopping.
It’s fair to say that digitalisation has revolutionised our economies and our lives.
We’re richer, more productive and are more connected as a society as a direct result of the digital economy.
However, for all the benefits that digitalisation provides us – and the list is endless – there have been some significant challenges too.
Privacy, data protection, job displacement and new types of fraud are just some examples.
These are all significant — and complex — issues that we need to address as a global community.
That is the exact approach the Australian Government is taking.
We’ve also been working with the international community to design policies to make sure our regulatory systems are fit for purpose.
Taxation is central to our discussions.
Domestic companies are increasingly competing with offshore and international businesses.
This is a welcome competitive dynamic, yet as governments we must ensure that businesses operating in our domestic economies and deriving income from our economies pay their fair share of tax.
It goes to the heart of integrity and what we in Australia call the ‘fair‑go principle.’
On the direct tax side, Australia has implemented a range of measures to address multinational tax avoidance, including in collaboration with the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS).
In fact, Australia is in the process of being completely compliant with all the BEPS recommendations that we championed in 2014 when we held the presidency of the G20.
We’ve also introduced powerful new anti-avoidance measures such as the Multinational Anti-Avoidance Law and the complementary Diverted Profits Tax, to stop multinationals diverting their Australian profits offshore to avoid paying tax in Australia.
Further, we’ve established a Tax Avoidance Taskforce, allowing us to crack down on tax avoidance by multinationals, large corporations and wealthy individuals. In a little over two years of operation the ATO has collected over $6.5 billion in tax.
GST on Digital Products and Services
We’ve also acted on the GST.
The Australian Government has taken steps to level the playing field for our local businesses by ensuring they are not unfairly disadvantaged by a GST burden that their overseas competitors simply don’t have when selling goods and services to Australian consumers.
We’ve implemented two key policies:
- The first is to extend the GST to imported digital products and services
- The second is to extend the GST to low value imported goods.
I know these policies have been of tremendous interest to the international community given Australia is one of the first in the world to implement these sorts of reforms. I am pleased to outline them today.
We extended the GST to digital products and services that are imported by consumers in Australia. The GST rate is 10 per cent, the same for all other taxable sales.
This applies to cross-border sales from 1 July 2017.
The policy ensures that the GST is charged where consumers in Australia:
- buy music online from overseas;
- use video streaming services;
- buy e-books, and
- buy software or services such as consultancy, legal or training services.
Of course, we’ve ensured the rules that apply to offshore firms are the same as those that apply to businesses in Australia.
For example, offshore businesses with Australian turnover of $75,000 or more are required to register for and remit GST on those sales to Australian consumers.
This is the same test for Australian business to register for GST.
Consistent with the International VAT guidelines produced through this OECD Forum, we introduced a simplified registration regime to make it easier for offshore businesses to register and comply.
But we also leveraged our relationships within the OECD to reach out and provide education on these changes.
For example, our collaboration with the OECD’s Business and Industry Advisory Committee and large accounting firms meant we were able to reach out more effectively to global businesses, engage with them early in our law design and incorporate their feedback.
GST on low value imported goods
The Australian Government went further than extending the GST to digital products and services.
Before 1 July 2018, cross-border imported sales of goods valued below $1000 – or low value goods – were exempt from GST.
This exemption gave an unfair advantage to overseas businesses that were not subject to GST like Australian businesses.
We knew that to level the playing field we would need to extend the GST to low value imported goods and we used the same model for compliance as for the digital services measure.
Indeed, many firms also providing digital products and services found it easy because they were already complying with the law.
We certainly faced some hurdles in implementing this measure, particularly around the vendor collector model it’s based on.
However, it has proven to be a success, and today, I am pleased to give you an overview on how we’re tracking.
Recent registration numbers reveal that over 1500 offshore businesses have registered under both measures, covering all major platforms and businesses from all jurisdictions.
I can also report that both measures are collecting more revenue than estimated.
In terms of revenue, the GST on digital products and services measure raised around $269 million Australian dollars in 2017-18 compared with an estimate of $150 million.
The low value imported goods measure raised around $81 million for the first three months of operation, compared with an estimate of $70 million for the first year.
These are pleasing results. However, we haven’t stopped working on ensuring that all eligible businesses comply with the measure.
We’re continuing to reach out and help offshore businesses register and charge GST under both measures.
There’s also more to be done as we continue to work on new measures to build on this success.
In the 2018-19 Budget, we announced that we would extend the GST to offshore-based hotel booking companies.
This measure would make sure offshore sellers of hotel rooms in Australia charge GST just like Australian sellers do.
We are also consulting on a potential reporting regime for sharing economy providers to ensure income is reported by sharing economy platforms based domestically and offshore.
Given the focus in this forum on the sharing economy, I believe these consultations will be of interest to you all and others will be speaking on this in more detail.
As governments all know, there is always more work to be done to keep pace with the rapid changes brought about by digitalisation.
So let me finish by, again, welcoming the OECD and all of you to this Forum.
Clearly, digitalisation has brought significant benefits and challenges for our tax systems. Yet I am confident that together, we are well‑positioned to harness the benefits and meet the challenges head-on.
From an Australian perspective, we’re pleased to share our experiences in implementing some of our GST measures. We look forward to hearing your thoughts and views on these and broader measures to address the challenges of digitalisation.
Much has been achieved through this Forum in establishing a strong body of thinking through the international VAT guidelines. Now it’s up to us to take the next step in applying these ideas for the benefit of our local businesses and communities.
Thank you for the opportunity to address you today. I wish you a productive forum and a pleasant stay in Australia.