The federal government has revealed plans to expand the goods and services tax to digital products such as those provided by Netflix and Google under proposed legislation to feature in tomorrow's budget.
The Coalition wants to apply the GST to intangibles such as digital books, music and software provided by overseas-based companies.
Expanding GST coverage to merchants supplying digital products into Australia will reap the Government $350 million over four years, Treasurer Joe Hockey said today. Every dollar earned will go to the states, he said.
Digital goods companies will be asked to apply the GST at point of sale. It means Australians will be charged 10 percent more for downloaded movies, music, books and software sold in Australia by the likes of Google, Amazon, Microsoft, Netflix and other technology companies.
The GST is already applied to intangible products sold on Apple's iTunes store.
"What we’re doing is going to digital providers overseas and saying ‘can you apply the GST to the products you provide into Australia?’," Hockey said today.
"They are agreeable to it. It’s not their profits [being taxed]. It’s a tax collected and they remit it back to the country where that occurs."
He admitted that not all technology companies had reacted well to the idea, but declined to name names.
"There are some providers of goods that are based overseas that are prepared to charge the appropriate taxes in that jurisdiction. There are other companies that won't, so we are trying to get a global approach," Hockey said.
The GST only currently applies to imported physical goods valued at over $1000. The Government opted against introducing GST for products worth less than $1000 as it would cost more to enforce than it would reap.
Hockey said the Government currently had a consultation process underway but "obviously" wanted to implement the new approach "as soon as possible".
He said it would not be introduced before July 1 this year.
"We have to properly consult. One of the things I'm concerned about is unintended consequences, particularly for Australian businesses," Hockey said.
Tackling diverted tax
The Government also plans to introduce a multinational anti-avoidance law for companies engaging in profit-shifting as part of its ongoing crackdown on corporate tax avoidance.
Hockey declined to detail the amount the Government expected to bring back onshore through the proposed legislation, but said it was 'obviously billions'.
He said the Government was targeting 30 companies specifically through the draft law. Microsoft, Google and Apple have been consistently criticised as engaging in tax avoidance.
The legislation will expand Part IVA of current tax laws to give the Australian Tax Office the ability to discern what a company's proper taxable profit should be in Australia.
The ATO will have new powers to recover unpaid taxes and issue fines for the unpaid taxes, equal to the amount lost plus interest.
Hockey said the Government was looking for the scheme to start next January. It will not apply retrospectively.
"The companies are set up for a particular purpose," he said.
"We don't support retrospective legislation but if they have got a structure, given the size and scale of the fines, which are very significant, as soon as they start to restructure, then you would expect they would start to pay tax in Australia."
The Government will provide further detail on its plans as part of tomorrow night's federal budget.