State treasurers will be asked to subject almost all imported parcels to goods and services tax under a dramatic proposal that would cut the GST-free threshold from $1000 to just $20.
NSW Premier Mike Baird has already signalled his support for a lower limit. Victoria's Treasurer, Tim Pallas, is open to the idea.
The change is being pushed by federal Assistant Treasurer Josh Frydenberg, who wants to level the playing field between digital and physical sales after this year's budget extended GST to all digitally delivered music, movies and software regardless of the price.
Without further change, electronically imported goods will be more heavily taxed than physically imported goods when the new rule comes into effect in July 2017.
The proposed $20 limit will be put to treasurers when they next meet with federal Treasurer Joe Hockey and Mr Frydenberg on August 21.
NSW Treasurer Gladys Berejiklian, Mr Pallas and South Australia's Tom Koutsantonis are likely to vote in favour.
Western Australia's Mike Nahan said he would consider the proposal only if the Commonwealth changed the formula it used to distribute GST to the states. However, his position may have softened after a Commonwealth decision to grant his state a one-off $499 million earlier this year.
The Productivity Commission concluded in 2012 that while the cost of lowering the threshold and inspecting more parcels would be high there were "strong in-principle grounds" for doing so. It would treat foreign retailers the same as Australian ones.
The commission examined cutting the threshold to $500. Mr Frydenberg and Mr Hockey believe more recent technological advances have pushed down the cost of enforcing even a much lower threshold. Canada has a threshold of $20, Britain has £15 and the United States has no threshold at all, subjecting all imported parcels to tax.
Mr Hockey hinted at what he had in store on Friday, telling a business summit he had "found a way to ensure that those providing goods from overseas into Australia do not get any advantage out of the tax-free threshold.
"This is hugely important for small business," he said. "How do I say to a bookseller in Lane Cove that they have obligations to pay tax, but Amazon selling the same book from overseas doesn't? It's unsustainable.
"It's been hard to plug but it's got to come to an end."
Earlier this year Mr Frydenberg argued the threshold was "fundamentally unfair", saying if Canada, Britain and the United States could have lower thresholds, "why can't we?"
Analysis by the National Australia Bank suggested one-quarter of Australia's online sales went to overseas retailers.
Mr Frydenberg said the number of international mail parcels doubled between 2006-07 and 2010-11 to more than 48 million. Since then the number had nearly doubled again. The fastest growth had been in imports worth less than the $1000 threshold.
The change is backed by the Australian National Retail Association and the Shop, Distributive & Allied Employees Association, which has written to state treasurers lobbying for the lower limit.
