Market Insight

Australian Government to impose new tax on digital products and services from 2017

June 03, 2015  | Subscribers Only

David Scott David Scott Associate Director – Research and Analysis, Service Providers & Platforms

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The Australian Government will impose a GST on digital products and services from 1 July 2017. The measure, announced as part of the Australian Federal Budget 2015, aims to ensure that the GST is consistent for both Australian and international providers. Dubbed the ‘Netflix tax’ – the GST aims to raise an additional $A350 million in revenue over four years. Consumers buying digital goods and services from overseas will have to pay GST on their purchases. This includes streaming/downloading of video, music, ‘apps’, games, software, e-books, and other services.

Australian consumers currently do not pay GST for online transactions that are less than $A1,000.The new tax will not affect iTunes and Google Play transactions since customers using these stores in Australia already pay GST on their downloads.  

Our analysis

The measure aims to close a GST loophole so that the suppliers of digital products and services into Australia are charged the GST in the same way as local providers. The new measure may change since the consultations around the draft legislations remain open until 7 July 2015. If the Government passes the new GST, several international services will be more expensive for Australian consumers. For example, the Netflix service, that launched in Australia in March 2015, charges $A8.99 a month which is cheaper than the charges of its major local competitors Stan, Presto and Quickflix. As a result, Netflix will be forced to increase the cost of its service to consumers if the Government passes the new GST law. The current GST rate in Australia is 10% on most goods and services. The tax would increase the cost of Netflix from $8.99 to $9.89 a month for the basic package, or $13.19 a month for the standard option. For consumers it is not a very significant increase in cost but for the Government, it will create additional tax revenues.

Overall more than 30 companies will be subject to the new rule according to the Australian Federal Treasurer. Additional uncertainties still need to be addressed to ensure that international providers understand the proposed system properly. Hence, the delayed start date of the law so that providers may consider as appropriate implementation and discussion of the solution. 

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