Friday 25 October 2013

A modest proposal for internet tax parity

New Zealand currently runs a de minimus rule exempting low-value imports from GST. The IRD has reckoned that collection costs outweigh the taxes collected and so it's pointless charging our 15% GST on items valued at less than $400 NZD.

NZ book retailers, among others, think that this exemption is the main thing driving people to Book Depository and other online international online retailers. There is much outrage about unfair tax treatment. Toby Daglish made the typical case for distortions that can arise when imports aren't subject to GST while domestic goods are. And he's right, as far as he went with it. But he didn't go far enough.

And so we come to my modest proposal.

If you import goods from abroad subject to GST, the goods get held up by customs on arrival into New Zealand pending payment of GST. You then need to arrange separate payment of the GST. This can involve a drive across town to the postal outlet holding the item pending payment. If we subject foreign goods to GST, we solve one distortion while inducing another one - potentially a larger one.

And so here is my proposal:

BE IT RESOLVED THAT, henceforth, all goods imported from abroad will be subject to GST. In order to remove all possible distortions, however, we must introduce a new regime for the domestic purchase of any good that could have been purchased from an international retailer. Henceforth, shoppers will pay the ex-GST price of those goods at the retail outlet, but must travel across town to a licensed depot to pay the GST component and pick up the good. The customer will be notified on the good's arrival at the depot, but a minimum of a four-day waiting period applies.

Doing so will ensure a level playing field between New Zealand retailers and their foreign competitors. Everyone is subject to GST, and everyone is subject to the hassles of dealing with customs for payment of GST. Anything else would be distortionary. And distortions are bad.

Or we could stick with the status quo. I'm cool with either one.


  1. While I realise you're being helpful and all, when the revolution comes they are going to hang you.

  2. What's to stop the Government targeting it from the supplier end. For example tell Amazon and Book Depository you must pay 15% of all your sales to NZ customers to the NZ govt otherwise we won't let any goods you send through our customs. They could then pass the extra cost onto NZ based consumers.

    I'm guessing third-party re-sellers would quickly crop up.

  3. Certainly not a libertarian revolution, Eric. To paraphrase Matt Welch, we libertarians are far too interested in punching each other in the face to organize a proper outward looking revolution.

  4. Because otherwise anything they send gets seized?

    I still think they would simply transfer to a third-party shipper.

  5. They'd have to start inspecting each package a fair bit more closely to make this work. Otherwise, I expect offshore shippers would prefer plain brown wrapping to dealing with IRD.

  6. Or worse still just refuse to ship to NZ, at the point we become a hassle to deal with they will refuse to supply.
    If NZ customs can implement a hassle free system (at low capital outlay) then yes GST should be collected on <$400 items otherwise no.