GST on imports - yet again

Not sure that I'm a fan of the latest idea for applying GST on lower-valued imports.

Recall that New Zealand uses a de minimus minimis regime - no tariff or GST applies for imports where the total amount that would be collected is less than the cost of collecting the tariff. For most goods, that works out to a $400 threshold on purchases. 

In some first-best world, in which tax collection at the border were effortless, there would be no GST threshold and all goods consumed in New Zealand would attract the same tax treatment, regardless of whether they were bought domestically or imported from abroad. In a world with collection costs, we trade off between the distortions caused where the absence of GST encourages more imports, and the distortions caused when the application of GST at the border introduces hassles that discourage consumers from importing when it would be efficient for them to import, or discourage foreign retailers from shipping to New Zealand. Bundled into all of that as well is that a very liberal importation regime can provide strong competitive pressures in sectors with weaker domestic competition.

The Prime Minister suggested coordination through the OECD as potential solution. In that scheme, as best I understand it, anybody wishing to export to an OECD member would need to register with some agency and collect sales tax on behalf of the country to which the goods were being shipped. So Amazon, for example, would need to register, then pay GST to the New Zealand government on all shipments to New Zealand. Where New Zealand could never convince anybody else to collect taxes for New Zealand, the joint approach could have larger firms do so.

There are a few problems with this though.

First off, while big firms would do it, what are the odds that smaller US-based firms would want the hassle of dealing with a myriad of international tax rules? There are already plenty of American firms that don't want to bother with international shipment - that's why YouShop exists. More would stop shipping internationally. While it's simple to say "tech will fix it" and that retailers would only need to put some product characteristics into an online form to figure out what tax applies, none of that is simple. Canada exempts kids' clothes from GST but not adult clothes: do you know if your customer is a kid? The UK has weird delineations around what counts as which types of foods for tax purposes. I wonder how many Etsy sellers currently shipping internationally would still want to do that if they had to figure out exactly into which category their products fit, on pain of, well, pain if they got it wrong?

It gets worse if subnational taxes also need be applied and collected. Canadian provinces vary in sales taxes. America has over 8000 different local taxation regimes, some of which issue 1,437-word memos on which kinds of ice-cream sandwiches are taxable and which kinds aren't. It seems ridiculous to imagine that some simple "put in a few product details" form would solve this. If the US does move towards a harmonised interstate sales tax regime, things would be simpler, but we aren't there yet.

And that leads into the second problem. New Zealand firms selling to NZ consumers have to deal with GST - which is pretty simple in the grand scheme of things. NZ firms selling directly by mail order to consumers abroad do not have to collect taxes on behalf of foreign governments. Do we really want a world in which would-be exporters from New Zealand need register with the OECD and figure out a pile of international tax issues to, say, ship a set of sheepskin slippers to somebody in the US?