Here's how the 'Netflix tax' in the budget will work

Frank Underwood from House of Cards on Netflix Australia. Photo: YouTube Screenshot

Australia will soon attempt to make online retailers from outside the country pay their fair share of GST.

Treasurer Joe Hockey tonight tabled legislation which he says will level the playing field for Australian businesses by mandating that foreign businesses supplying digital products and services are subject to GST.

“It is unfair that overseas based businesses selling services into Australia may not charge GST when local businesses have to charge GST,” says Hockey. “A local business that employs Australians, pays rent in Australia, pays tax in Australia, and helps build our economy is disadvantaged by the current system.”

A briefing paper on the legislation says: “This change will result in supplies of digital products, such as streaming or downloading of movies, music, apps, games, e-books as well as other services such as consultancy and professional services receiving similar GST treatment whether they are supplied by a local or foreign supplier.”

Exactly how the GST will be collected from suppliers who have no presence in Australia is unclear.

A briefing paper on the legislation says it is expected that the Australian Tax Office will work with affected suppliers.

In some circumstances, responsibility for GST liability may be shifted to the operator of an electronic distribution service rather than the supplier.

The legislation is called: “Tax integrity: extending GST to digital products and other services imported by consumers.”

It will scoop up services including Netflix, which doesn’t charge GST, while local streaming media players such as Presto, Stan and Quickflix have to. As a result, Netflix costs a little less than local services.

The legislation is a catch-up for GST which was introduced in 2000 at a time when online sales were tiny. Then it was thought that it didn’t matter much to revenue if a small amount of goods escaped the tax.

This measure will ensure the GST revenue base does not steadily erode over time through increasing use of foreign digital suppliers.

The draft bill amends the GST law.

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