Australian Government Plans to Tax Digital Downloads, Media Dubs It the "Netflix Tax"

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The nation's goods and services tax now applies to overseas companies like Netflix selling digital products to Australian consumers.

The Australian government is planning to raise $279 million (AUS$350 million) over the next four years by applying the 10 percent goods and services tax (GST) to digital downloads, including movies and TV shows sold to Australians by overseas suppliers, with legislation introduced into parliament on Tuesday, Australian treasurer Joe Hockey said.

Dubbed the "Netflix tax," the GST will apply to digital products and services, including e-books, music, movies and consulting advice bought online from overseas suppliers.

In a statement Hockey said: "It is plainly unfair that a supplier of digital products into Australia is not charging the GST whilst someone locally has to charge the GST.

"When the GST legislation was originally drafted, it did not anticipate the massive growth in the supply of digital goods like movie downloads, games and e-books from overseas. It means that local companies, who do collect GST, will no longer be disadvantaged compared to their international competitors."

However compliance will be voluntary. Its unclear  in the case of Netflix, which launched in Australia on March 24, if the company will absorb the cost of the GST into its monthly subscription fees. Its base subscription rate of AUS$8.99 a month is $1 a month less than competitors Stan and Presto’s base rates.

A Netflix spokesman said, “Netflix has been and will be compliant with all applicable laws and regulations, and we pay taxes as required under local and national law”.

Foxtel, a partner in Netflix competitor Presto, welcomed the government's move. Spokesman Bruce Meagher said: “The introduction of this legislation will not only help to maintain consistency across the competitive landscape, but it will also ensure that Australia gets its due taxes from the companies that choose to do business here, which benefits all Australians”.

In Australia the GST is charged at 10% of the retail price of a product. ITunes users in Australia already pay GST on their downloads.

Hockey said that the OECD has recognized the issue of cross border digital sales as a problem for some time and a number of companies are working constructively with governments.

A number of other countries have or will introduce similar rules such as Japan, Norway, South Korea, Switzerland and member countries of the European Union.

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