Tuesday 27 January 2015

Online GST revisited

While pretty much all goods and services consumed in New Zealand attract GST, imported goods under $400 are GST-exempt; IRD generally reckons the cost of collecting the tariff to be higher than the taxes collected.

As Australia's debates around reducing or abolishing its GST-free threshold have sparked renewed NZ-retailer pushes for its removal here, I wrote a short piece for NZ Retail, the local retail trade magazine. Their news story is here. Here's the op-ed. A snippet:
Does this create an uneven playing field for New Zealand retailers? Yes, as compared to a world in which tax could be collected costlessly. But consider the real world!
Ordering higher valued products from abroad means they will be held up at Customs until GST is paid. The quickest payment option is the online credit card service which attracts a 2.5 percent convenience charge. Internet bank transfers are cheaper, but require the customer to take the separate step of logging into online banking, making the payment, then waiting for Customs to notice that payment has been made.
Or, you can drive across town to your nearest Customs office. All of these methods also attract a separate Import Entry Transaction Fee of $29.29 (including GST) and a biosecurity levy of $17.63, regardless of the value of the import. That hundred dollar import that was undertaxed by $15 suddenly would attract not only $15 in GST, but also $47.29 in transaction charges.
It often seems like local advocates of a lower GST threshold really just want importation of foreign goods to be such a hassle that customers give up on trying. That world is the one I lived in in Canada in the 1980s, when I would stare longingly at American computer magazines and know that getting anything across the border involved at least $200 in brokerage fees.
I worry that too many local retailers focus on the GST issue when the underlying issue is rather more troublesome. New Zealand simply is not large enough to be able to achieve the economies of scale that foreign warehouses enjoy. Even if GST could be applied on foreign imports, today, with zero hassle-cost imposed, the foreign cost advantage is not likely to decline over time. The problem really isn’t the GST, or at least not in cases where consumers can easily save at least a third by shipping goods in from abroad. Domestic retail of easily shipped goods that do not require specialised local advice is not going to get easier. Recognising that rather than blaming the GST will be an important part of a reality-based reassessment of retail opportunities in the coming decade.