The Define Luxury Goods In Australia
If the Goods and Services Tax (GST) will be implemented in Australia as proposed, there will be a need to define luxury goods. This should be done in line with the existing tax classification, which is Excise Tax on the imports and exports of goods. Luxury goods are generally defined as items that a person would not want to have to pay taxes on. These include items such as designer clothing, artworks, antique items, luxury holidays, private jets and yachts, wines and spirits, and many more items. However, in order to properly define luxury goods, one needs to put in mind that luxury does not mean having a lot of it and as such is not subject to taxation.
The main aim of the government when introducing a luxury goods tax is to raise money by taxing high-end goods imported into the country. According to a recent report by the Australian Institute of Company Directors, the Australian tax system already has a limited ability to tax high-end goods due to the complexity of the current tax classification system. A company director stated that the lack of clarity in the existing tax rules is causing issues for both importers and exporters. To complicate matters still further, the Australian Highways Commission recently indicated that it may introduce a toll on the intercoastal transport of luxury goods in the future.
In addition, luxury goods that fall under the scope of the definition of luxury are very likely to become highly targeted items with regard to the GST. For instance, wine is likely to become a highly targeted item with the introduction of the new tax system. Many of the existing taxes on wine such as the GST are based on its production cost. As such, if the production cost of wine is substantially increased, the profits of wine importers will decrease. On the other hand, if the government introduced a luxury goods tax on the international market, Australian wine importers will have an opportunity to participate in this type of trade.
The existing tax rules on luxury goods are also being stretched even further by the Federal government. For example, the current GST rules state that any importer that imports of luxury goods into Australia must register the goods with the Australia Customs and Border Management Authority (ACBMA). On top of this, if the importer fails to pay the taxes, penalties will be imposed on the importer. The importer may be required to pay additional duties and penalties not covered by the rules and regulations.
This raises questions as to whether the definition of luxury goods should include some additional conditions that would deem a particular item to be a luxury rather than ordinary or common goods. An obvious example is a cell phone. A cell phone can fall into the category of luxury goods, because it is a telecommunication device. The tax rules however do not currently allow for the imposition of a tax on cell phones. It is also important to note that the cell phone industry is one of the most competitive industries in the world.
Another item that is considered luxury goods by the current regime is jewellery. Jewellery is often seen as a more unique and personal item than other goods and many items of jewellery are purchased by individuals. Because of this it may be considered a luxury good rather than the common good. The Goods and Services Tax (GST), which are applied on goods that have a high turnover and are imported into Australia, can be used to charge a special rate for imported goods. Because of the high turnover of jewellery, however, many jewellers make their profits from sales of personal items rather than from the business sector.
Because of these and other considerations, it is believed by experts that the importers of luxury goods are able to benefit from a loophole in the current legislation. Under the current rules, goods that are imported into Australia are declared to be goods for personal use. If that was the case, then the importers of luxury goods would have been able to offset any tax they paid against the profit made from the sale. As it is, if they can offset the cost of importing the item against the profit made on it, they can keep on claiming that the tax they paid against the income they made on the item was not a luxury good but a genuine personal item.
This has led to an increase in the number of items that are imported into Australia each year. Some of the more popular items include clothing, sports cars, China, and art collections. Many of these luxury goods are produced overseas, in countries such as Italy, Spain, China, Russia, or the United Kingdom. Because these items are normally imported for personal use and not for commercial advantage, the importers do not have to pay the Goods and Services Tax that they normally pay on the imported items. The importers do not include the tax when they are selling the item.