Thursday 11 July 2013

Internet sales taxes: NZ edition

Should consumers buying online goods from overseas pay GST on their purchases? The Press reports that IRD is examining options.

The status quo is that purchases from overseas do not attract GST where the cost of administering and collecting the tax exceeds the tax collected. So purchases of $400 or less are untaxed: the fixed cost of collecting the tax must then be about $60.

The New Zealand retailers hate that Kiwis like importing things from abroad, but it's hardly the GST-savings that are driving things. You can fairly easily save upwards of 50% by using UK bookseller BookDepository rather than Kiwi outlets; fixed costs here matter a lot more than the 15% GST difference.

Were there some costless technology for imposing GST on goods coming in at the border, then New Zealand should do it. The more we can rely on consumption taxes, the less we have to rely on income taxes. If collection technologies change, then the threshold too should change.

So there is nothing objectionable about IRD's continuing to keep an eye on the optimal GST collection threshold and on things that might reduce collection costs.

But I do hope that IRD is weighing the costs of collection falling on all parties, not just those falling on IRD. When a package is held at the border pending GST collection, it takes time and hassle to bill people, and packages get delayed. All of that is off-budget from IRD's perspective, but they're real costs too that should count in the calculus. And, they're particularly pernicious costs: the random-draw delays that can obtain if goods get held up waiting for GST collection can put people off online shopping from abroad entirely. That's likely what the Retailers Guild is hoping for.

I expect that having the credit card companies or foreign retailers act on IRD's behalf would prove rather intractable. I would also be a bit surprised if collection technologies have advanced sufficiently to make it worthwhile to collect at lower than a $400 threshold, but perhaps IRD will surprise me.


  1. The only real option would be to use credit card companies/pay pal to charge GST on all offshore transactions (unless the card holder is registered for GST) and remit to the government. Do-able but I can see the financial institutions making all sorts of noise about impossibility.

  2. Yeah, but then we have the mess of sorting gifts all us expats buy for family back home from things bought for shipment here. And Kickstarter donations and the like. I doubt the credit card companies want at all to get involved in this mess without being paid to do it.

  3. true, but the requirement could then be for you to claim back the GST if you thought it wrongly charged. So if for example you were overseas and used your credit card you would make one claim for any GST charged to your account. Do doubt the credit card companies would charge their customers for the priviledge.

  4. If the card companies don't charge for the service, it'll be because of a general hike in fees - no way this would wind up being cheap. Also expect that the hassle would start imposing deadweight costs as well.

  5. actually I don't see that it would be expensive at a transactional level (ignoring the set up cost which could be a bit). Essentially the credit card company knows it's a NZ credit card, knows the supplier is outside of NZ and even knows if the card device used is inside/outside NZ, and knows the amount - all they need is a flag for GST registered (or just charge everyone as the GST registered people can claim anyway) and to process the GST as an extra line on the credit card bill.

    What else is required from their perspective?

    Paypal is an interesting case and I don't know enough about how it works to know the answer

  6. Would think from the credit card company's perspective it would be hassles around dealing with customers wanting to be exempted because the purchase was for foreign use.

  7. I don't think so.

    The credit card company obligation would be to charge the GST. Having thought some more, they could just charge on every off-shore transaction.

    If the credit card holder is gst registered, then they just claim the GST in the normal way - no issue there.

    For non-GST registered people they would need to prove they were out of the country at the time of purchase - again this information is recorded electronically so the IRD could match passport records. It would be up to the individual to make the claim back for the GST (which is not dissimilar to what happens when you want to claim GST off purchases in the country of purchase).

    That leaves

    Paypal - I know you can link a paypal purchase back to a credit card, but I don't know enough to know how this would work for off shore purposes.

    Debit cards - ie I purchase a pile of offshore currency before going on holiday. There could be treated just like a credit card and your card debited for both the purchase and GST and it's up to you to claim. Would be ideal if the GST was in NZD so the claim would be in the same currency and no exchange risk.

    Having said all that, I don't believe that this will solve the NZ retailers problem. The problem is that too many want to charge the same price for an ex-store purchase as they do for an ex-warehouse (on-line) purchase. If they provided a better on-line price that reflected the online costs they would get more local purchases.

  8. 1. Agreed entirely that the GST difference is small relative to the inefficiencies encountered in NZ retail due to small scale.
    2. The credit card line... maybe you're right. Number of folks buying online as gifts for folks abroad likely low relative to number shipping back to NZ.