Electronic Commerce and the Goods and Services
Tax - Implementation
Senate Adjournment Debate
Senator LUNDY (Australian Capital Territory)
Tuesday 1 December 1998 - 7.28 p.m
One of the greatest ironies of the recent election was that, whilst economic
commentators lamented the lack of scope in the tax debate, crucial elements of Labor's tax
package were completely under-analysed. The status attributed to the GST was singular:
reform equals GST. This had the effect of constraining the tax debate into one of pro or
anti the coalition's new tax.
It is an indictment of those who offered their active advocacy to the GST that a little
peek around the millennial corner was not taken. This simple voyeuristic endeavour would
have brought into sharp relief the inevitable damage that a GST will do to the Australian
economy. Quite simply, if a GST makes some goods dearer, it is bound to encourage
Australians to buy via global e-commerce. Electronic commerce, the practical facilitator
of a globalised economy, will inevitably reduce the revenue raising capability of a GST.
Global access to markets via the Internet, to electronic services and to intangible or
digitised property will defy national borders, and hence tax laws pertaining to
consumption, relegating the GST as a tax for times past.
Labor's tax proposals, which offered an innovative approach to leveraging social
outcomes from the income tax system, remain a worthy alternative base from which to build
a tax regime for the next century. Conversely, any proposal that perpetuates or enhances
inequity, like the coalition's GST, will inevitably break down social cohesion.
The OECD Ministerial Forum on Electronic Commerce held in Ottawa in early October
represented an important forum for discussions on these issues to progress. Unfortunately
for Australia, we did not have a minister present. Whilst I acknowledge this had more to
do with the timing of the federal election, it was nonetheless an indictment that none of
the state Liberal ministers could find time in their schedules to attend. Had a minister
attended, he could have brought back the bad news for the Prime Minister and the
Treasurer. The bad news for the government is that electronic commerce will undermine a
GST within a relatively short space of time.
Instead of looking forward and anticipating the challenges of a globalised economy, the
GST, as I said, is a tax for times past. It is a tax based on the assumption of an
isolated fiscal regime, where revenue collection can be structurally linked to domestic
consumption within national parameters. With the Internet as the medium and electronic
commerce as the mechanism for economic globalisation, this assumption is false. To base
our tax system on a false assumption is both foolish and irresponsible.
The Ottawa ministerial forum made many recommendations as well as articulating many of
the unresolved challenges e-commerce will bring to member nations. The report entitled
Electronic Commerce: Taxation Framework Conditions, produced by the Committee on Fiscal
Affairs, outlines the principles that have given Australia and other OECD members policy
guidance to date. The central tenet is that the tax regime of member nations should not
discriminate between the digital or physical commerce environment.
Australia has embraced this principle. Only today we saw the Prime Minister make a
joint statement with respect to a theoretical bilateral agreement, when what we saw in
fact was an echoing of many of the outcomes that were articulated two months ago at the
OECD ministerial forum. There are many other features of this statement that are
contextualised by a rhetoric commitment, stated in the report as `the potential' of
electronic commerce `to be one of the great economic developments of the 21st century'.
How Australia extracts the potential value of this great economic development will not be
governed by our internal fiscal regime but rather by how we leverage ourselves in the
global marketplace. Australia is a comparably small economy, so great care needs to be
taken to ensure that our future economic base is nurtured. That is why the Prime
Minister's failure to confront the GST in today's joint statement is so responsible.
(Gore/Clinton
speech 'announcing' the agreement)
The Ottawa ministerial forum traversed many issues, not least being the impact and
effect of electronic commerce on a nation's ability to tax consumption. The report
Electronic Commerce: Taxation Framework Conditions identifies four elements of an
electronic commerce taxation framework specifically relating to consumption tax. Firstly,
rules for the consumption taxation of cross-border trade should result in the jurisdiction
where consumption takes place and an international consensus should be sought on the
circumstances under which supplies are held to be consumed in a jurisdiction. Secondly,
for the purposes of consumption taxes, the supply of digitised products should not be
treated as a supply of goods.
Thirdly, where business and other organisations within a country acquire services and
intangible property from suppliers outside the country, countries should examine the use
of reverse charge, self-assessment or other equivalent mechanisms where this would give
immediate protection of their revenue base and of the competitiveness of domestic
suppliers. Fourthly, countries should ensure that appropriate systems are developed in
cooperation with the WCO and in consultations with carriers and other interested parties
to collect tax on the importation of physical goods and that such systems do not impede
revenue collection and the efficient delivery of products to consumers.
So, as you can see, the OECD report poses some fascinating riddles with each of these
points highlighting the complexity that a consumption tax introduces to the electronic
commerce challenge. At this stage, the OECD have been unable to offer any better advice
than self-regulation for the taxing of services or intangible or digital property
purchased via the Internet. It would be an envied administration that could extract tax
voluntarily, so this concept is not going to be realised.
The implications of this weakness of the GST in a globalised economy must not be
underestimated. Claims that the current small proportion of e-commerce sales in the
crucial business to private consumer category justify a steady as you go approach look
forlorn in the context of the phenomenal growth that Australia is experiencing in Internet
connectivity: with a 46 per cent growth in Internet connectivity to households in the last
nine months alone and a subsequent growth in e-commerce predicted as security solutions
are refined and commercialised.
The Internet and television will collide in an amazing kaleidoscope of interactive
entertainment and information services in lounge rooms around Australia. A global
smorgasbord through which goods and services can be purchased will become available and
consumers will no longer be confined to a domestic marketplace. This new media will be
driven, as is conventional media, by advertising revenues. When the market is a global one
and seeing an ad from a US based travel agent and booking online may provide a better
product for a cheaper price for consumers, not to mention avoiding the national GST, the
dangers become clear.
If a GST makes some goods dearer, it is a reasonable assumption that it will encourage
Australians to buy via global e-commerce, thus avoiding tax and potentially wounding
Australian industry. Where are the Australian Taxation Office plans to stop this seepage?
If the current e-commerce threat to the tax base is a worry, the GST will accelerate it.
With the Internet identified as a priority for the tax department, you would think the tax
commissioner would have had more to say. The government has been deathly silent on the
implications of the GST with respect to e-commerce. It is about time that they released
the study and recommendations arising from that.
All in all, these issues point to one outcome, and one outcome only: the irrelevance
and the lack of suitability which the GST represents to Australia in the 21st century. The
silence of the government, particularly in the context of today's statement, certainly
shows, firstly, that they either have looked at these issues, realised the serious
implications and are choosing not to say anything or, secondly—something which is
almost a worse scenario—that they do not understand. Time will tell the outcome of
this issue, but in the meantime the government has an obligation to confront these issues
actively and put their intentions and plans before the Australian people.
Media Release: 1 December 1998 - Howard’s
e-comm ‘agreement’ merely an OECD echo
