Retail Policy Review - Minister for Treasury and Resources - Submission - 2 October 2018

GST de minimis threshold Scrutiny Panel briefing paper

1. GST de minimis threshold – background

1. Where individuals import goods that are worth not more than £240, the goods can be imported into the Island without incurring GST.
2. Strictly the de minimis threshold is set by reference to the amount of GST that is not collected (i.e. up to a maximum of £12 of GST is waived[1]), this explains why the de minimis threshold automatically reduced when the GST rate increased from 3% to 5%; however the general public is understandably more interested in the value of goods that can be imported without suffering GST, hence the more common reference to a £240 de minimis threshold (the GST on a good worth £240 being £12).
3. Goods worth more than £240 are detained on importation and cannot be released to the individual until the GST due on them has been paid (unless a pre-arrival declaration is made or Approved Trader Status is applicable).
4. Costs are incurred when goods are detained, including: someone has to identify the relevant goods, store them, contact the customer, arrange payment of the GST, authorise release of the goods and then ultimately deliver the goods/arrange collection.
5. These costs are borne by government (i.e. the Jersey Customs and Immigration Service ("JCIS")), Jersey Post and the fast freight/courier businesses.
6. The de minimis threshold is therefore a balancing act between (i) maintaining a level playing field/maximising tax revenues from the existing tax system; and (ii) minimising the administrative and compliance costs associated with detaining goods.
7. If the de minimis threshold were to be lowered additional GST would be collected, in addition more goods would be detained and the associated costs would increase. It is noted that, utilising the current method of collecting GST on imported goods, at some level it would actually cost more to collect the GST on the goods being imported than the additional GST collected – this would be an undesirable position to reach.
8. The de minimis threshold of £12 in Jersey was set in 2007[2] following consultation with businesses and representative bodies – it was considered to achieve an appropriate balance (noting that, because GST was introduced at 3%, the appropriate balance was initially determined to be achieved at goods worth not more than £400, whereas now the value of goods that can be imported without incurring GST has reduced to £240). It is acknowledged that shopping habits have changed since the de minimis threshold was set in 2007.

9. The decision to set the de minimis threshold at £12 was made by the States Assembly in P171/2007[3].

2. Data relating to GST de minimis threshold

1. Table A summarises the total number of consignments which were imported into the Island (excluding goods imported by Approved Traders and goods where the individual had made a pre-arrival declaration whereupon the goods are not detained by Customs). This table demonstrates the increasing amount of consignments that have been imported into the Island in the circumstances described above:

Table A - total number of consignments which were imported into the Island (excluding goods imported by Approved Traders and goods where the individual has made a pre-arrival declaration)

Source: TPU analysis of JCIS data

2. Table B summarises the total number of consignments detained by JCIS over the period 2013-2017 and the amount of GST collected on those detained consignments (throughout this period the GST de minimis threshold has been £240):

Table B – consignments detained and GST collected

Source: TPU analysis of JCIS data

3. Table C summarises the number of additional consignments that would have been detained and the additional GST that would have been collected on consignments imported in 2017 if the de minimis threshold had been set at various lower levels.

Table C: number of additional consignments that would have been detained and the additional GST that would have been collected on consignments imported in 2017 if the de minimis threshold had been set at various lower levels

Source: TPU analysis of JCIS data

4. Attached in Appendix A is the source data available from JCIS which supports the tables produced above.
5. For the avoidance of doubt this data only includes those consignments which are manifested at importation and therefore excludes those goods which are not manifested (e.g. goods which are delivered through the normal mail). Therefore the data will underestimate both the amount of GST that could be collected and the number of consignments that could be detained at each de minimis threshold modelled.

3. International developments on GST de minimis thresholds

1. The level playing field concerns raised by domestic retailers are not unique to Jersey; they are being raised in many countries with comparable GST/VAT systems because historically the globally accepted approach to addressing the issue of the importation of low value goods has been to implement a de minimis threshold.
2. Consequentially other countries and supra-national bodies are looking at changing the basic rules of GST/VAT so that online retailers with no physical presence in a jurisdiction would charge and remit GST/VAT based on the fact that their customer is located in that jurisdiction (known as a vendor collection model).
3. Australia is currently the furthest advanced country; with relevant legislation enacted in 2017 which came into effect on 1 July 2018. However despite the size of the Australian economy, concerns have been raised about Australia's

ability to implement and enforce its legislation[4] and Amazon have recently announced that, as a result of the change in the Australian rules, they will not be selling from Amazon.com into Australia and will only sell from the more limited Amazon.au range[5].

4. The EU Commission meanwhile has proposed changes to EU VAT that will remove the availability of the EU's VAT de minimis threshold from 2021. The broad plan is that the current approach of detaining goods on importation will be replaced with a vendor collection model, although detailed plans on how it is going to work in practice are not currently available.

Appendix A

Latest available data regarding impact of setting GST de minimis at various lower thresholds

Source: JCIS data