Wednesday 25 March 2015

Protecting retailers

Retail NZ spokesman Greg Hartford explains why he believes GST on imports is important:
But Retail New Zealand spokesman Greg Hartford says the proposed online GST idea will help retailers that can’t compete with foreign websites.

He says the cost to the government of not having an online GST system is somewhere above $200 million a year and adds that he expects this figure to climb as online shopping becomes more popular.

“We’re certainly aware of retailers going out of business because they cannot compete with foreign websites.

“We’re also aware of shops having to reduce staffing because of the state of their businesses.”

Mr Hartford disagrees that the higher level of bureaucracy will put smaller retailers off.

“Creating a level playing field isn’t a magic bullet that’s going to solve all the issues facing New Zealand’s retailers but it’s certainly one that is an easy fix for the government that will at least mean that everyone is competing on the same page.”
Hartford would prefer that the threshold be dropped to $25.

Both the above pieces also quote from our recent media release.

I'm not sure about that $200m figure: it would require that Kiwis spend $1.3 billion on direct imports from abroad, or a bit over $300 per capita. Total retail spending in New Zealand last year was just over $20 billion. Is it plausible that 5% of retail volume is direct to consumer imports of low-value items?

I'll assume that Hartford would wish the abolition of the biosecurity levy and the Import Entry Transaction Fee for lower valued imports - they add $47.29 in transaction costs for any import that runs through Customs processing, and $47.29 in fees on a $25 import (plus $3.75 GST) hardly makes sense. But abolishing those levies doesn't abolish the associated handling costs - it just shifts them to the general ledger. And without making it cheaper to process GST at the border, a $25 threshold necessarily imposes transaction costs far in excess of the revenues collected - and that's even imagining that the mechanism doesn't impose other hassles on customers.

If Hartford, or anybody else, is able to come up with some better way of processing GST at the border, without imposing undue hassle on either those who might be deterred from exporting to New Zealand or on Kiwi shoppers, and without collection costs that exceed the value of GST collected, that would be great.


  1. Probably 1.3billion of NZ income, rather than the much lower cost of the imported items - when retail NZ cannot rort the public through government and geographical monopolies.

    If we take the average cost between 25 and 75% (or less*) of the NZ price, then we would be much lower.

    *My mother brought some disney costume for my niece. NZ price 50-75$. Brought via china including postage ~15$.

    GST aint going to help these business models built with no concept of globalisation.

  2. A significant portion of my non-grocery retail spending is done offshore. In many cases the purchases exceed the current threshold and I pay GST + IETF and the significant cost of shipping individual items from overseas. The cost of the items locally is often 50% or more greater than the cost overseas, or I just can't get them here.
    The effect of the IETF on the lower value imports becomes disproportionate to the point of becoming prohibitive as the threshold decreases.
    Currently the IETF covers not just the transaction cost for processing the GST transaction but also customs and border security cost. Obviously these costs apply to the lower value items as well but are currently only being collected on imports > $400. So we are already loading all the customs / border costs onto the higher value shipments. In order to support a lower threshold, we need some efficiency gains on the side of customs along with a low transaction cost e.g. $5. Customs and border security costs can continue to be loaded on the higher value shipments but perhaps on a graduated value basis say 2% of the shipment value to a maximum of $200 (whatever it needs to recover the costs), then a retailer importing 100 items is paying more of these costs than me importing one item. It's hard to say if that fairly reflects the actual costs involved but we already load the higher value shipments and in the current scenario the worst impact is on those just over the threshold where a $47.29 fee is disproportionate.

  3. Doesn't this miss the real point. What matters is the welfare of consumers not retailers.

  4. Producer and consumer surplus both count. My main worry is that we're likely to induce bigger distortions against imports than we might have in favour of them.

  5. Agree in principle, but the main issues are still getting a seamless mechanism so that customers have no more regulatory hassle in buying online from abroad as compared to buying online domestically, and so that foreign shippers aren't deterred from having anything to do with Kiwi shoppers.

  6. "Consumption is the sole end and purpose of all production" Adam Smith

    "Consumption is the end, the final cause, of all economic phenomena, and it is consequently in consumption that their ultimate and definitive justification is to be found." Frédéric Bastiat

  7. My impression is that on this subject you are biased against the imposition of GST. Fair enough. But it seems to have extended to looking only at the downside, with no consideration for whether or not a solution is possible. Why? I'm for the imposition of GST to level the paying field and because I suspect this problem will become bigger over time resulting in potentially significant base-erosion. $200m, if true is a good start to that. If that figure is true, and retail sales of $20b, does that mean GST could be reduced to ~14% and the net revenue to the government would be the same if online sales had to pay GST?

    Red herring - 'I'll assume that Hartford would wish the abolition of the biosecurity levy and the Import Entry Transaction Fee for lower valued imports'. They're already coming though unchecked, so one can't abolish a levy on them that doesn't exist.

    'without imposing undue hassle' - Going online to order an item or going to a shop, or requiring Hola etc to watch US Netflix, or stress that the overseas website could be dodgey could be regarded as 'undue hassle' by some. I definitely don't think we need to be 'getting a seamless mechanism', nothing in the world is seamless. I wouldn't have any problem with some additional effort being required to get an item into the country, but I agree that it should be minimised.

    For alternatives, discuss the options I mentioned in your previous thread - 1) competitive customs market to reduce border costs, 2) a simple pay-before-clearance system, 3) look at alternative methods of applying a GST eg. apply it to the buyer rather than the seller

  8. In that case, a price discriminating monopolist that increases total surplus but (by supposition in this example) reduces consumer surplus is a bad thing in your books?

  9. Hi Lindley

    We're the threshold lowered without other changes, the biosecurity levy and processing fee would apply too; that's why I'd said they'd been be abolished for lower value import on the reduction of the threshold.

    Any pay before clearance system would need a way of matching parcels to addresses no? Hard to see how that works without foreign retailers tagging the parcels. Some will provide a shipping tracking code that could be used as identifier but far from all. And it is a separate step for the consumer for often low value items. Same for applying GST to the buyer. But tell me more about your competitive customs proposal.

  10. I have wondered for a while if a self regulation system would work - essentially require (significant) online shoppers to file a return at intervals declaring the value of their shopping (i.e. 'I've spent $x,yzx over the last 12 months, here is my transfer to cover the GST).

    Enforcement/checking would be reasonably straightforward - customs would simply need to keep a database of each packet arriving in the country (log the delivery address say) and use that as the basis for auditing - i.e. if 6 Smuggler Street received 30 packages from Amazon last year, and hasn't filed a return it is pretty high likelihood that they should have.

    Might even SAVE government compliance costs as it would be reasonable under this regime to dramatically cut the number of inspections at point of entry (for tax purposes - obviously drug/biosecurity costs would remain the same)

    Not a tax specialist, so probably something obvious I am missing that makes this unworkable...

  11. The US tries this. State-level tax returns require you to say how much you bought online from other states and pay local sales tax on that. Problems with it:
    1) Most people here don't have to file, so adding in a new form is a bigger step than adding a line to an existing form;
    2) It doesn't really work in the US: too hard to monitor and enforce. That's one reason that they've been trying, unsuccessfully, to figure out an internet sales tax for cross-state purposes. Tax laws vary a ton state-to-state. The best shot they'd had at is was running a deal where those states agreeing on a common set of sales taxes would also agree on cross-state application. But that fell apart too.
    3) Doesn't hit services, which seems a biggish chunk of current concerns.

  12. I certainly see those points. I would think though on each:
    1 - Most (???) people would still not have to file - i.e. only if you had imported large amounts of items.
    2 - I agree enforcement would always be challenging, but would imagine it being easier for an entire nation than a single state as everything (???) passes through a customs location on entry anyway
    3 - No answer here... though maybe this is easier for the government to deal with at the company level rather than the individual - i.e. it Netflix accounting should relatively easily be able to identify anything with an NZ billing address IF they were sufficiently incentivised to do so.

  13. Think of it then from the consumer's point of view. At the start of the tax year, you need to forecast ahead whether you're going to do enough online shopping to file so you know whether or not to save receipts on the bits and pieces you import...

  14. Only consumer surplus matters, but properly defined in general-equilibrium. Income from profit contributes to consumer surplus, and so in a partial equilibrium setting the change in the sum of CS and PS is a good approximation to the change in aggregate consumer surplus.