The federal government will move to impose the goods and services tax on services such as Netflix under new rules set to be included in next week's budget.
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Championed by Assistant Treasurer Josh Frydenberg, the change will apply GST to imports of so-called "intangibles" such as downloaded books, music, videos and software. The GST already applies to imported parcels worth more than $1000.
The change will push up the price of a Netflix subscription by 10 per cent.
The government's expenditure review committee has been told that the change is fairly easy to make, requiring little redrafting of the Tax Act.
A 2012 review by former premiers Nick Greiner and John Brumby found that lost GST revenue on software downloads, e-books and other intangibles amounted to $1 billion a year. Since then software imports have more than doubled.
The change would not affect the price of iTunes downloads. Apple says it already pays GST on every sale in Australia including downloads.
After the budget, Mr Frydenberg will go further and attempt to convince state treasurers to extend the GST to low value parcels. Although earlier government reports have examined the case for lowering the $1000 threshold to $500, Mr Frydenberg is thinking of something much lower. Canada has a threshold of $20 while the United Kingdom has a threshold of 15 pounds.
At the most recent treasurers' meeting only one treasurer objected, Mike Nahan from Western Australia. He said he would not consider the proposal until the Commonwealth changed the formula by which it distributed the GST revenue between the states.
On Wednesday Prime Minister Tony Abbott announced a one-off grant of $499 million to Western Australia to help it cope with a Grants Commission ruling that would have given it less than 30 cents out of every GST dollar collected in the state.
A spokesman for Mr Nahan said he remained unprepared to discuss extending the GST to very small parcels, notwithstanding the grant. He would consider it only when Commonwealth revised the entire funding formula.
NSW Premier Mike Baird has come out in favour of lowering the threshold, as have South Australian Treasurer Tom Koutsantonis and former Tasmanian premier Lara Giddings.
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 put Australian and foreign retailers on a more level tax platform.
The government believes technological advances have pushed down the cost of enforcing a lower threshold.
The change is strongly supported by the the Australian National Retailers' Association and the Shop, Distributive & Allied Employees' Association.
Labor's treasury spokesman Chris Bowen attacked the Coalition on Wednesday for "turning its back on Australian retailers" by failing to impose the GST on overseas online retailers.
"Despite their promises to small business, despite their promises to Australia's retailers, showing the dysfunction at the core of the Abbott government is getting worse and worse," he said.
