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You're Going To Have To Pay GST On Your Online Shopping

And here's why it could cost you way more than 10%.

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In a statement on Thursday morning the prime minister and state premiers have confirmed an in principle agreement to apply the GST to overseas purchases which cost less than $1000.

Earlier: Online shoppers could soon be slugged with a 10% tax on products bought from overseas retailers.

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The federal government is keen to lower the threshold on online goods and it looks like the states agree.

With so many Australians preferring to do their shopping online instead of in stores, retailers based in Australia have been calling on the government to even the playing field. They say it's not fair that customers can buy the same product online for 10% cheaper.

At the moment, if you buy something from an overseas store, you don't have to pay 10% GST on it, if the product costs less than $1000. But federal assistant treasurer Josh Frydenberg is leading a push to have that lowered to $20.

Frydenberg has been keen to lower the GST Low Value Threshold for a while, accusing Australian consumers of going on a "GST-free buying spree."

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"It is not fair to taxpayers, or to retailers or their many employees, to exempt overseas online retailers from the GST even if some consumers are enjoying the ride,” he wrote in The Australian in January.

This year's budget has already changed the rules so the GST also applies to digital "intangible" products like e-books, music and your Netflix subscription.

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That means when the rule comes into effect in July 2017, you'll be taxed for downloading Paul Blart: Mall Cop 5, but you won't be taxed if you buy the same movie on DVD.

But consumer advocacy group Choice warns that online shopping costs will skyrocket, with price increases up to a whopping 256% for purchases under $100.

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Choice says that lowering the GST threshold will also see the introduction of collection and processing fees at a time when Australian consumers are already paying more for products than in other countries.

In the UK, where there the GST threshold is £15 ($27.15 AUD) consumers have to pick up their parcels from the post office, where they have to pay a £8 processing fee.

In a submission to the federal government's tax discussion paper, the group wrote "processing fees do not reduce the costs of collecting the GST. They do not increase the likelihood that a lower threshold will raise net revenue. They simply transfer these costs from government to consumers."

Choice's other main argument against lowering the threshold is that it will cost the government more in administration fees to collect the GST than the revenue that it would raise, and the only way to fix it would be to pass the costs on to the consumer.

Josh Frydenberg and treasurer Joe Hockey say technological advances have made it much cheaper to enforce a threshold of $20.

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"This is hugely important for small business," Hockey said at a business summit on Friday.

He said he had "found a way" to make sure that foreign retailers would not get an advantage over local retailers.

The change to the GST on imported parcels looks set to have the support of the states when the treasurers meet next month.

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"I think I can tell what this is! A 10% Goods and Services Tax!!"

At a pre-budget treasurers meeting, they were all in favour except for WA's Mike Nahan, who didn't want to agree to anything until the GST revenue distribution was changed.

And they probably won't get much opposition from Labor. In May, shadow treasury spokesperson Chris Bowen criticised the government for not including the lower threshold in the budget.

E-commerce analyst at Telsyte, Steven Noble, says there are other factors that influence the industry, such as shipping fees and the value of the Australian dollar.

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"A change in the GST will probably have a very similar effect to a 10% fall in the Australian dollar, and we are seeing falls greater than that over the last couple of years," he told BuzzFeed News.

Noble says it won't solve the sluggish sales of Australian bricks-and-mortar retail stores either, because Australian-based online shopping website are getting much better.

He's observed a "shift in maturity of Australian online retailers that are reaching parity with the majority of overseas retailers" where Aussie shopping sites are learning about what works overseas, and doing it themselves.

The government's Productivity Commission said in 2011 that the GST threshold "may just be distracyting attention from more fundamental issues facing the retail industry."

But with broad support from both sides of politics, and intensive lobbying from retail unions and associations, at this stage it's likely that the cost of online shopping is going to go up.

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