SYDNEY: Netflix must pay GST says Assistant Treasurer Josh Frydenberg while the issue will be considered in next week’s discussion paper on tax reform.
US streaming titan Netflix launches in Australia and New Zealand on Tuesday. It revealed on Monday that pricing for its offering would start from $8.99 a month $1 less than its competitors.
It has been able to undercut its rivals Stan, Presto and Perth-based Quickflix by not charging Australian customers GST, giving it a 10 percent cost advantage.
The company, which holds a $US20 billion ($25.7 billion) market cap, is not, for tax purposes, considered a “local entity” in Australia. Like many other digital companies, it is therefore not required to collect GST.
“Netflix is just another example of the growing digitisation of the Australian economy, and the challenges related to taxing the trade of services and intangibles across borders,” Mr Frydenberg told Fairfax Media.
He wants all offshore-based companies selling into Australia online to come within the tax system.
But GST is a tax paid by consumers, not businesses, and there has been a public push-back recently against attempts to tax online goods.
Level playing field
Mr Frydenberg said it was not about taxing consumers, but creating a level playing field for all retailers.
“Expect these kinds of issues to be canvassed as part of the tax white paper process,” he said.
After months of hype, Netflix launches in what analysts and entertainment executives say will be a “noisy” and competitive market.
Presto, a joint venture between Seven West Media and Australia’s most profitable media company Foxtel starts its subscriptions at $9.99 a month, while Stan, a partnership between Nine Entertainment Co and Fairfax Media, owner of The Australian Financial Review and BusinessDay, starts at $10 a month.
Netflix has put forward a three-tier pricing structure that undercuts its competitors. The $8.99 subscription will allow customers to access the service on only one device. If people want to watch Netflix on two screens the price jumps to $11.99 a month, and hits $14.99 to allow streaming on up to four devices.
Netflix’s pricing comes after a Venture Consulting report supported analysts’ expectations that Australia could support only two streaming players in the long term.
The report also found almost 10 per cent, or 250,000, of Foxtel’s customers were considering downgrading or cancelling their subscriptions in favour of streaming. The company’s chief executive Richard Freudenstein shrugged off the report, saying he still expected subscriber growth.
Communications Minister Malcolm Turnbull suggested last week collecting GST from global technology companies such as Facebook, Twitter and Google for the advertising they sell in Australia. He made no mention of Netflix.
“At the moment little or no GST is collected in respect of advertising by Australians on international online platforms like Google and Facebook. This can be done unilaterally and would recover very substantial amounts of revenue,” Mr Turnbull said.
Mr Frydenberg said Netflix needed to be taxed.
International guidelines
“Australia is involved in OECD work that is being undertaken to develop international guidelines for the VAT/GST treatment of cross-border supply of services,” he said.
Any change to GST required the agreement of all states and territories, he said.
“Any proposal for change needs bipartisan support. The Commonwealth government cannot act unilaterally.”
A Netflix spokesman said: “There have been discussions in both countries about changing the law on this to collect even from non-local entities. However, that’s something to look at in the future.”
Netflix confirmed on Monday that it would offer all three series of its critically acclaimed drama Orange is the New Black.
“Members can catch up on seasons one and two of the critically acclaimed series Orange is the New Black, in advance of season three’s global premiere on June 12, where Australians will also find the entire new season on Netflix the same day it’s available around the world,” the company said.
“Netflix will also be the exclusive premiere home for season three of the political drama, House of Cards.”
