The Netflix Tax: Everything You Need To Know

Days after Federal Treasurer Joe Hockey confirmed that the so-called "Netflix Tax" would be coming for your wallets, we now have the details on the plan from the Budget.

What Is It?

"Netflix Tax" is a pretty sexy name when said in a press conference, but the actual plan is a a bit more complicated.

According to the Government's 2015 Budget papers, the 10 per cent Goods and Services Tax will be "extended to cross border supplies of digital products and services imported by consumers".

What's Being Taxed?

It's pretty broad. Think of it this way: anything you can download to a tablet, smartphone or e-book reader, including music; movies; e-books; digital magazines and streaming services will be taxed.

Why Is This Happening?

The Federal Government is looking to level the playing field for businesses in Australia. From the Budget papers:

Under the current law, digital products and services imported by consumers are not subject to the GST. This results in forgone GST revenue to the States and Territories and places domestic businesses, which generally have to charge and remit GST on the digital products and services they provide, at a tax disadvantage compared to overseas businesses.

The GST was designed to apply to all products and services, except those specifically exempted, for example fresh food, health and education. This measure ensures that the GST applies to non-exempted products and services, including digital supplies purchased from overseas and from Australia.

In his budget speech, Hockey said that local businesses had previously had an unfair advantage over their overseas competitors:

It is unfair that overseas based businesses selling services into Australia may not charge GST when local businesses have to charge GST.
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.
We will level the playing field for Australian businesses by mandating that foreign businesses supplying digital products and services are subject to the GST.

When Will It Start?

Don't worry: the Government won't up the cost of your digital services starting from tomorrow.

Digital products and services will be taxed from 1 July 2017 (assuming the relevant legislation is passed). Over the two-and-a-half years from July 2017 to 2019, the tax is predicted to net $350 million, which will be distributed to the states (the normal destination for all GST revenue).

What do you think of the new tax on digital entertainment and services?

Image via Shutterstock


Comments

    So one minute they talk about he need to curb piracy and torrenting, and then the next minute they increase the price of services from overseas just because they're cheaper (there's a reason it's being called the "Netflix Tax"). The Australian government keep telling us they want to end piracy, but then enact laws that are more likely to cause it. Well done guys. Well fucking done! Can't wait till this embarrassing government is gone.

      I don't think you understand how significant the countries debt is. New avenues of tax revenue need to be opened up and this is one of them.

        Considering there were taxes that were good sources of revenue that were axed just to grab some votes (has anyone noticed prices going down since the carbon tax? of course not) - So lets tax something to increase piracy instead of tackling the actual problem.

        I don't think you understarnd. The debt isn't that significant. We're in the lowest 8 of the OECD. Sure its a debt, but not significant enough for the netflix tax.

          As much as your premise sounds good, the VPN needed to continue with your piracy still attracts GST.

          Oh and my money is on 0.00% change in piracy rates (after an initial 3 month dip while everyone gets their VPNs sorted) especially if the copyright cartel has it's way with spotify and Hulu (ending the free tiers of each)

          Last edited 13/05/15 10:07 am

            Explain how a VPN service provided within another country is taxed with no business face or hardware in Australia

        Yes but this government is the main cause of our debt increasing and now they are forcing the tax payers to bail them out.

          'this government', maybe you mean this and previous governments. At least you do understand it is 'our debt', i.e. all taxpayers.

        "new avenues for tax revenue....this is one of them" ahahahahahahahahahahahahahahahahahahaha

        "I don't think you understand how significant the countries debt is"

        Sorry but I don't think you do. G20 wise we have the 4th lowest debt (to GDP), aka in short it's nothing but that doesn't make a good press headline.

        Increase tax and you reduce spending (Economics 101). The cost of debt is at historic lows so the idea we simply must get rid of debt at any cost is plain silly.

        Complaining about national debt shows an incredible lack of understand of how countries operate.

      Yes, they call it the "Netflix" tax because that provides the most obvious illustration of the disadvantage faced by local companies. While Stan and Presto charge $9.99 a month, which is $8.99 + GST, Netflix is able to undercut them by the exact amount of the GST. Do you think that is a coincidence?

        Yes, coincidence. Prices are set by whatever people wanna pay. Also it's not comparable as Netflix Basic is SD and single-stream.

        mate im happy to pay STAN or Presto $15 a month if they have the amount of contents that Netflix offer.

        Exactly. They're not proposing Netflix should cost more because they hate technology they're proposing that Netflix should have to pay a GST equivalent when operating in Australia because all Australian businesses have to collect GST.
        People are outraged here because it's seen as some obnoxious old idiot attacking Netflix, but really this is closer to fixing a loophole that allows services like Netflix to skip paying taxes. If we were talking about K-Mart not paying taxes because on paper they're an overseas operation the angry mob would be on a completely different side.
        I'm torn on the issue since this isn't a great or practical solution and there's a good reason digital imports are such a grey area, but people need to look beyond the knee jerk reaction and stop treating this like a personal attack against people who like to watch movies. It's got nothing to do with movies, TV, Foxtel fights, Steam games or being screwed over by higher prices just for being in Australia. It's about the GST and how it relates to Australian businesses ability to compete with overseas rivals in purely digital low-cost imports.
        Traditionally nobody worries about low-cost imports because if the money was there the volume would increase to the point where they couldn't slip under the radar, but with digital low-cost imports Netflix is able to import hundreds of thousands of dollars worth of goods while keeping each transaction individual. It's a new shipping method that bypasses customs in a way that the system was never designed to handle. Like it or not a solution needs to be found. Personally I'd rather they just got rid of GST on purely digital services. but that's only good for me in the short term.

    It's a new economy. Just saying "well they can do it cheaper than us and that's not on" doesn't cut it anymore. If they can do it cheaper, then you need to better compete, not make it more expensive. In the digital age, consumers have the democratic right to get their services elsewhere. Tacking on an extra charge 'just cos' just makes people look for alternatives.

    This scheme will be an utter failure.

    Why should an Australian company have a disadvantage meeting it's tax obligations while a foreign company does not?
    Netflix may be cheaper, but the Australian companies offering the same services would be cheaper too without their GST obligations.
    We're one of the richest countries in the world per capita. How about we try keep it that way by supporting the country and its companies?

      remove the gst on local companies and they would still be more expensive and still loose against the likes of netflixs due thte fact that netflix is much better value for money. when it comes to games, eb games and jb hi-fi still have to pay rent and employees and they are buying games for the same 60USD that we pay for some products ( excluding arsehole publishers like 2k games)

      The local companies actually have the same advantage as Netflix, if they were selling their service into the USA they wouldn't have to charge GST there.

        They do have VAT though. What's annoying there is everything you can buy has a shelf/sticker price that doesn't include tax. So you take a $15 item to the counter and it checks out at $16.50. They should just put $16.50 on the tag. Grrr.

      Entitlement to do business, is not a reason to be in business. Government, ATO et al cannot do jack shit about it.

      Do you know what the internet is? Do you know what a digital good is?

      They
      Can
      Not
      Stop/Do/Change
      Jack
      Shit
      Unless the overseas business has a presence in Australia. Most DO NOT!

      It is a publicity stunt to be "seen as doing" for the Harvies of Australia who are hell bent on blaming everyone but themselves for losing money. Even if they do end up charging 10% at border on physical goods, Hardley competitive is not out by 10% but more like 100-200% in most cases. It also adds to the ever growing cost of border control to police invoices.

      I now price check against Amazon for utterly everything I buy. I am sick and tired of being screwed over at the border because some asshats supply chain goes through 5 businesses to get to the customer. I am no longer lining the pockets of middle men.

      Last edited 13/05/15 9:54 am

        With a large-scale supply chain and bulk-purchasing discount power, it is still baffling to me that for many consumer goods it is still cheaper to pay overseas retail prices, then additional costs for a SINGLE-UNIT to be shipped individually than it is for me to buy from a retailer who has used a wholesaler and bulk shipping.

        Something has gone horribly fucking wrong in that supply chain if I, a single customer, can secure a cheaper price than a retail chain dealing with a wholesaler and bulk shipping.

        Last edited 13/05/15 10:16 am

          I work in a small business dealing in musical instruments and audio tech. Staff can buy things from the store at cost price, yet there are still things I could buy cheaper from the US than I could at our cost. Distributors in Australia are dinosaurs and the business model needs to change, as it's fucking everyone over.

            See, this is what's horribly fucked. It should not be cheaper for a retailer to buy from another retailer - charging effectively two lots of retailer mark-up - than it is for them to buy from a wholesaler.

              There's plenty of other examples too.
              Take plastic toy soldiers (warhammer).
              Here's a company that has no competition... it's the sole manufacturer and distributor of the product.
              Now this is not a digital product, so there's distribution, customs and shipping costs as well as the costs associated with shelf space and retail stores. BUT the online store prices are no different to retail.

              3rd party hobby stores do get trade prices and thus usually end up being 10-20% cheaper than retail. HOWEVER. Australian prices can be up to 45% more than the same thing in the US or Europe. Canada and NZ get a little bit screwed too.
              If I can order from Europe (which has to be via family because GW has forbidden it's trade partners from selling overseas), pay for shipping, convert currency and still get the product at 40% off Australian retail, that's flat out price gouging.

              If companies are doing the same thing for digital products, that's even more disgusting. And yet, they at least have competition... Somehow, competition doesn't seem to affect a large market as much as it should.

              The fact that GW have local offices, local warehouses and retail stores means that (due to a good supply chain) they should be EASILY able to supply the product at competitive global prices. And yet here we are.

      BECAUSE AUSTRALIAN COMPANIES DON'T KNOW WHAT AUSTRALIANS WANT

    Is there a Australian company or business thats lets me buy my games online like steam?

      Some of the backlash comments to Steam coming under Netflix Tax is the site named something like g2key where you can buy games online and this site apparently wouldn't be affected by the Netflix tax. I can't think of the damn name.

      EDIT: I think it might be g2play. Hadn't been to the site till now. Looks like it is an eBay "Buy it Now "for game licenses.

      Last edited 13/05/15 2:48 pm

    As for Netflix which seems to be the most publicised target of this all, "oh no, not an extra $0.80 a month!" *sigh*

      Yes but you're only thinking of Netflix. I import parts from Japan and America because there is no where in Australia who supplies genuine products, just shitty after market ones that don't fit etc.

      I would now need to pay lets say an extra $100 on top, not because this guys have an unfair advantage over an Australian business but just because the government want's to make money off something it's not entitled to.

        This is talking about digital goods, and aside from that, goods over $1000 bought overseas are already charged GST, physical goods under $1000 aren't

    But they're still not taxing the companies... They're just taxing us.

    Last edited 12/05/15 10:07 pm

      This is the thing that annoys me about this. In most of the media releases/quotes the government talks about the potential GST revenue like it's free money that haven't been collecting when really it's our money. This isn't going to cost businesses anything, just us. It's a side issue from the competition aspect but one the government keeps pushing.

      I think you need to work out how tax works, sir.

        In this scenario, Netflix would pass on the GST component directly to the customer, therefore he is correct.

      To be fair, there was a bit in the budget about closing loopholes and going after companies that dodge tax in Australia. I think that's a really important point that's getting zero media coverage.

      Those numbers add up to 2 orders of magnitude more than this digital goods tax.

        Smoke, mirrors and the perception that something is being done.

    I'll admit I didn't want the budget speech, but it's still entirely unclear to me what this is supposed to achieve and how it is going to work.

    Is the problem companies in Australia selling goods but not collecting GST ? WTF do we need special legislation to enforce that for ?

    Is the problem companies overseas selling "intangible" services here and not collecting GST ? Well, a) they don't have to *because they're not Australian companies* and b) under what legal premise does the Government expect to be able to require them to collect GST in the future ?

    Finally, how is this GST supposed to actually be collected ? What exchange rate should be used ?

      Exactly my thinking... This has been so badly explained by Hockey that it makes me wonder if he actually understands how business tax works in Australia.

      I think what they're likely to do is "incentivise" the bigger companies like Google, Microsoft, Netflix and Steam etc into collecting and paying the tax to the ATO by not pursuing them very strongly in regards to the international avoidance rules (despite saying that they will).

      eg "ATO will requires either your FULL payment of due taxes of $2B Mr Google... or you can pay $1.5B and start collecting GST for us as well..."

    This is purely being done to place a barrier between Australian consumers and the global market. Only big international players will be able to implement and be bothered implementing a system in place, accountants and tax lawyers to ensure they comply. Most simple won't bother.

    So we lose.

    As consumers we pay more. The international companies then have to pay to comply. Which will push the price up even higher than the 10% get.

    Many simply won't sell to us, reducing choice and competition.

      Why would they not sell to us? The government can't stop them unless they put some stupid internet GST filter in place. The Aus government can't compel any foreign company to pay the money. If another government tried to that to me I'd just laugh and tell them to piss off.

    Its like hes running around to companies, telling them all, don't think to put the Australian tax on, don't you know you can extort Australians???

    I'd still like to know exactly *how* this will work. And more importantly, how it will be policed.

    It would be extremely unfair to only target the large players here (Netflix, for example), while leaving other companies alone.

    How do foreign companie know they need to charge GST to Australians? Also how do they pay the ATO that money? How does the ATO audit a company they have no legal right to? How does a company know that their customer is Australian?

    Oh FFS. Boo Hoo your netflix payment "might" go up a buck a month, and your paypal fee goes from 5% to 5.5%.

    Have any of you visited a country anywhere else in the world that doesn't collect much in the way of taxation? They are pretty bloody awful. What do you think pays for hospitals, roads, infrastructure, police, army etc, etc.

    As a nation we pay less tax than most first world countries, and while i don't suggest that should change, it is just stupid to give overseas companies a 10% free advantage over local businesses.

    Tax revenue as percentage of GDP
    OECD average 34.8%
    Australia: 25.8%

      Yeah except this will cost more to collect than it will raise, so it's actually bad for everyone as money that would have been spent on *stuff taxes are spent on* will have to be diverted to pay for this tax.

    I think the big targets from this are companies who operate an Australian branch of their online store or products (iTunes, Microsoft, Netflix etc). If you have your service made for a specific country, you should have to pay the taxes in said country. The people who say that an extra $1 a month for Netflix will make them pirate are the people who weren't going to renew their subscription after the free trial anyway.

    Good luck enforcing that with overseas providers, who don't give a damn about what silly governments think should be done.

    Here's the confusing thing, though...

    If I buy a game from EB games here in Australia in AUD, I pay GST. That makes sense.
    If I go overseas to buy from Gamestop in USD... I don't pay GST. I pay that state's sales tax.

    But when I buy from Steam's storefront hosted in the US in the section they partition aside for Australians... am I buying from a store in my own country in AUD (hint: No), or am I visiting Steam in the US, buying in USD?

    To me, in the layman's view, where you do your shopping would seem to be the determining factor in qualifying for GST. The government can't tax me for all the shopping I do when I'm overseas, so why are they able to tax me for the business I'm doing virtually overseas? It's not like those companies agreed to come here and pay our taxes, I went to them.

    The other big question is how this is going to be paid for. The productivity commission pretty much vetoed any ideas about collecting GST on physical products because the costs were about four times the revenue. The thing is, a large part of that relied on having customs do the monitoring and detection.

    A large amount of the cost was administrative, providing the liaisons, tools, support for international businesses to register themselves to pay GST, and facilitating those transactions. Now, that part isn't going anywhere. There will still be a significant cost to collection which I haven't seen mentioned anywhere in their figures.

    But how do you monitor, police, enforce payment of digital goods? Unlike customs checking imported physical goods, there is no 'customs' for the internet. You can't actually monitor all the overseas incoming traffic. If I visit Amazon and buy something and it is delivered digitally direct through my internet tubes, the Australian government doesn't get to look at ANY of that. The only way they'd know is if Amazon 'does the right thing' and tells them.

    So basically this is... a voluntary tax? Really?

    There's a lot of problems with this system. I really don't think they've thought this through, or if they have, there's a lot they're not telling us.

    Last edited 13/05/15 10:06 am

      This is pretty much the extent of the problems as I see them as well.

    So before this is started, there will be 2 more budgets and possibly another government, sometime between now, and July 2017 there is the chance it will be overturned, especially if another government takes power and the ministers determine that it will cost more to police then revenue will be made.

    Surely raising GST by something fairly negligible on everything that already has GST on it would be easier to implement and put a bigger hole in the deficit. There's no way they can tax all digital purchases from mobile devices logistically, I think the cost in doing so will outweigh the benefit. They will need to spend millions to pitch, design and implement such a scheme. it's a fail and cop out.

    What happends if I purchase a Steam Voucher at EB and then redeem it on Steam? I know I'm Paying GST on the voucher. But will I be Stung a 2nd time?

    @naynay I wonder if the Australian Government is paying tax on the F35's... Maybe they should have bought them online through the Lockheed Martin online US hosted Website shopping cart. Could have saved Billions across our next 20 years of budgets. RAF! Why buy planes that will be obsolete before they go to war? Retrofit some Phantom Visions and save us all a Fk! load of money. Not like you will ever be called to use them anyway. #Governments_Run_By_Lawyers.

    I want to know how it's going to work and how it's going to be implemented and what the costs are.

    I can sum this up for everyone quickly and easily.

    Netflix Tax - It's the Carbon Tax of 2015.

    If I use paypal to pay an Accountant in the US $1000 to do my taxes, I mail them all the necessary documents and they email through all the completed ATO forms for lodgement at the end, wouldnt this sound a bit ridiculous to expect to pay GST on?

    The work was conducted in another country, the output was completely digital and they will be paying taxes in their home country for their earnings.

    Should taxes be paid twice? If the answer to this is yes, in reality the goverment will have to police and enforce payment from its Citizens and good luck arguing the GST as anything but a direct tax on the people in those cirucmstances.

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