Key says Government looking at unilateral consumption tax on online purchases from offshore sites; also looking at making online retailers register for GST

Key says Government looking at unilateral consumption tax on online purchases from offshore sites; also looking at making online retailers register for GST
Prime Minister John Key talking to reporters in Parliament on March 17 about online GST. Photo by Lynn Grieveson/Hive News

By Lynn Grieveson

John Key has thrown his weight behind moves to catch more online purchases and even digital downloads in the GST net, and Labour says it would support changes to close the online revenue loophole.

New Zealand is part of an OECD working group looking at the issue of consumption taxes on online sales, but revenue minister Todd McLay told the IFA conference last week that some countries had begin to implement their own online tax policies and he had asked officials for a report soon on the suitability of those policies for New Zealand.

On his way into National’s caucus meeting on Tuesday, Key said the OCED online taxation working party was not expected to report back “at least until the end of the year.”

Although the government was looking into the option of implementing its own online consumption tax policy without waiting for the OCED report, Key said this seemed the “harder” option.

“We are looking at both potential options because some countries do have their own individual approach, but certainly it looks a lot easier if you can work as part of an international approach,” he said.

The Retailers Association has estimated in this report that the shift in shopping to overseas websites could be costing up to NZ$300 million a year in lost GST receipts. BNZ's Online Retail Sales report for January found online sales to New Zealanders from offshore websites rose 14% in the last year, while sales by New Zealand websites rose 2% and sales from traditional 'bricks and mortar stores rose 3.9%. The BNZ/Marketview index estimates purchases of electronics and clothing and footwear from overseas sites was NZ$445 million in the year to January, up 17% from a year ago.

Register for GST?

But Key agreed that some online retailers could drop deliveries to New Zealand if they were required to register for GST.

“That's the risk and so that's why being part of a broader group with the OECD is important because if all the OECD countries around the world say you have to register, then that makes it much more difficult for iTunes or whoever to say, ‘we just won't supply that product in New Zealand’.”

Despite the risk of resistance from online retailers, Key appeared to support the OECD’s favoured option of requiring companies selling to New Zealand consumers to register with the IRD for GST.

“You would pay it at the point of purchase,” he said. “Effectively, as I understand it, the current proposal from the OECD is that if you went and bought a product from GAP, and the product was $100, GAP would be registered for GST like a normal business would be in New Zealand and so you would buy it for $100 and what would come up would be the price of $115 including the GST.”

“You pay GAP and GAP pays the New Zealand government.”

“Ultimately, you could get to a point, for instance, where, if you think about iTunes, if you download a song and it's a $1.29 or whatever it is, then there is no reason why the GST shouldn't apply to that. Now, in reality, the GST would be two cents - but actually two cents over a massive number of transactions still adds up.”

Reducing the NZ$400 threshold?

The government was also looking at ways to change the current “de minimis” amount while at the same time administering the rule more efficiently to reduce hassles for consumers, Key said.

The current “de minimis” setting means online purchases under NZ$400 escape GST, but Key said there was evidence of widespread under-reporting by consumers.

“There was a random audit done some time ago by customs of whether people were actually declaring at the right level, and a huge number of parcels were under-declared,” he said.

“The problem with just reducing the de minimis rule, so saying ‘above, let's say, NZ$25, you have to pay GST’ - the issue with that is: how do you collect that? At the moment if you buy something that's NZ$700, then one of the issues is those goods often get stopped at the border, you then have to ring customs and you have to give them your credit card details and you have to pay before they deliver it to your house.” 

“It's not an easy situation. Lots of countries take a different view. Australia, for instance, has a much higher level of de minimis at NZ$1000, but I think Canada is down at $25.”

'Online GST inevitable'

Key said that, despite the administrative challenges, it was “inevitable” that the online shopping loophole would be tightened, especially as big online retailers would try to “rort” the system.

“The reality is that, over time, if you roll the clock forward five, ten, 15 years, a huge amount of retail is going to move online. If you look internationally what you are seeing is quite a lot of shops, for instance, being established where they only have one sample product. You go in and try that on and have a look at it, but actually your purchasing is online. And that's the risk if you don't balance these things up and have them as fair. You could have some very big retailers who say, ‘well, I'll show you the product, I'll let you try it on but I won't actually sell it to you direct. Go to my online shop, which is based offshore and I avoid the GST’. So you can have all sorts of rorts that aren't fair long-term.”

Labour supports online GST

Labour leader Andrew Little agreed that the “gap in our GST collection” needed to be plugged.

“We have expressed our support for that approach,” Little said to reporters before Labour’s caucus meeting. 

“Most countries now have a consumption tax. If purchasing from one country out of another means that you avoid it, then clearly it is going to have an impact on government revenue but it’s going to put local retailers and suppliers at a disadvantage.”

“To level the playing field I think it is appropriate that we find a way to levy GST off those retail transactions that are done through our credit card system but from overseas suppliers.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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In regard to the 'monitoring' (by BNZ in this article) of online retail sales I suspect that the accuracy of these statistics, and especially those of international vs NZ sales, must be viewed with substantial scepticism.
While the differentiation of online vs in-person credit card purchases is not too hard to identify the same cannot be said for PayPal purchases which must make up for a substantial (and growing?) proportion of online transactions. PayPal is the main, or even sole, credit card (linked) payment choice for many websites both in NZ and internationally.
Our online business's website offers PayPal as the sole payment method for credit card as the commission is far less than the credit card companies take and at no extra cost PayPal's package also provides excellent security which is internationally trusted. More than 50% of our domestic sales and virtually all international sales are made via PayPal. Also, we like many others use our PayPal account as a virtual offshore (tax declared) bank account using accumulated funds from sales to pay for new stock from our overseas suppliers.
Our NZ bank account only sees a portion of our transactions. NZers using PayPal are billed in NZD no matter where the purchase is made (no "Offshore margin" CC fees). If the buyer has funds in their PayPal account (e.g. from Ebay selling) then only part, if any, of the purchase will result in a CC charge. And in conjunction with a mobile device PayPal can be used as a POS payment method.
So then how accurate are the 'statistics' of online retail purchases?

Imagine if they dealt in Bitcoins?
 
For over a decade, financial institutions have watched Apple decimate record labels, Netflix disrupt cable companies, and Uber upend unimaginative taxi operators. They now fear their sector will be the next one to topple. Jamie Dimon, chief executive officer of J.P. Morgan Chase & Co., America’s biggest bank, put it bluntly last February. The leaders of the digital revolution, he said, “all want to eat our lunch.”

http://www.theglobeandmail.com/report-on-business/feature-too-big-to-dis...

 

What will happen is ppl will figure out a way around it as per normal.
Sensibly, all say I would have to do is register for GST as a NZer and Customs hold my CC details so as the incoming goods pass by they bill me the GST.  
That way we dont go back to  the dark ages where retailers screw us over.
 

@ steven , the 15 % increase will not  rescue the NZ Retailers .
The strong Kiwi $ and the lower cost model of Alibaba etc  has finally got our retailers by the you-know-what .
And its about time .
If they want to survive , they need to stop price gouging .
During the last world cup a  Chinese made All Blacks shirt was $10 online and the identical chinese made shirt from the same supplier was $120 at Rebel sport .
Go figure
 

I reckon online purchases are a whole lot bigger than people ( including banks and Govt ) realiize .
My young adult children buy an unbelievable amount of stuff online , running into thousands of $ per annum , and  recently my daughter bought some of her Uni textbooks online from Amazon at significant discounts to the Uni bookshops , like 50 % cheaper .
Its quite staggering the mark-ups by retailers , gone are the days  of 5% to 20%  markups , its 100 to 200% .
So its little wonder that retilers are in trouble , they were sitting  in the lap of luxury , and now the lap has stood up .
I am not sympathetic .

Agreed, the markups in New Zealand are obscene.
I buy my running shoes from Amazon UK, $140 delivered - including the UK's 20% VAT. In New Zealand stores, they are $280 to $320. Add NZ GST, you will still lose the business.
Worse was a baby monitor we bought last year. Bought in the UK, $90. In New Zealand - $300!! 
Absolutely no excuse. It's like the retailers conveniently forgot that the NZD has appreciated so much.

John Key is dreaming if he thinks he can get GAP to register for GST in New Zealand .
They dont have a registered office here , just for starters .
Then , its unlikely that GAP actually supply anyone themselves , rather they would use agents or licenced garment makers .
Jockey underwear for example uses diiferent manufacturers to make "under licence " everywhere for South Africa to China . Jockey underwear sold in Farmers could be made in South Africa .
So does Van Huesen , who are based in London but whose shirts are made in Bangladesh and Zimbabwe  under licence , get registered for GST if I buy a Van Huesen shirt on Alibaba?
Also does John Key even understand how GST works .
GST is 15% of the nett gain on the product , in other words after allowing for inputs and expenses in the product .
Firstly how on earth are they going to calculate the unit input cost for GST for each and every garment from GAP ?
Then how on earth is he going to enforce tax collection when the business  HAS NO REGISTERED OFFICE OR PRESENCE IN NZ ?
Who is going to be held to account for the tax , someone in Shanghai or  Dacca or Mumbai ?
Good luck with that
That idea will not see the light of  day
 

You know some of the reasons I buy overseas is a) I cant get what I want here.  b) if a retailer can even be bothered I get seriously screwed over-price, have to wait up to 12months or have to buy a min quantity of say 5. c) What's here can be old, obsolete over-priced stock priced at 2015's model MRRP.
So what we end up seeing is the retailers here get a monopoly like they had in the old days 20 years ago because the Amazons, Brownells of the world etc will tell you to get stuffed.

And as another reason for purchasing online generally:
d)Details and customer reviews of the item you are purchasing is a mouseclick away compared to a retail assistant whose product knowledge extends to reading the product's label for you.

True , the only thing worse than a disengaged shop assistant who does not want to be there is the one who is downright rude

LOL, yep. Their drive to reduce costs really means they employ the least capable who will work for the min wage.
 

15% more will not rescue the retailers , the rampant Kiwi $ has taken care of that with online shopping , and the chickens are finally coming home to roost for our retailers who have ridden  the pig's back for years .
Quite simply when I can buy 5 good quality long sleeve  lounge shirts for work for $50 online delivered from China to Greenhithe within 7 days  and the price is up to $49.99 EACH in stores like Farmers  , something is very,  very wrong with our prices in NZ .
I have cited the exmaple of my daughters pointe shoes for ballet before , $30 online for tailor made pointe shoes where you send a photo and a diagram of each foot  , and  you pay $200 in a "specialist " shop in Remuera  where you are treated like something the cat dragged in by some pompous old fart  who has never heard of being polite to customers.
I assume its a Remuera thing . 
So I have no sympathy for our retailers who have ripped us off for far too long .
Furthermore , with the Kiwi $ getting so strong its going to make the retialers position a whole lot more difficult .
 

Agree, I find it interesting that the retailers are pushing the loss of GST angle.
Lets be serious, if I can import shoes from Amazon for $121NZ delivered (ie incl shipping which is expensive) in the colour, size (I have to have) and pattern I want when the NZ retailers dont have the smaller size, dont give a damn when you ask  and try and sell me a size too big for $160NZ, well frankly I dont see why I should care overly much. My niece got married last year, she got her dress on line. It cost her a few Hundred dollars from China and she and it was stunning.   Now that is bad for NZ retailers? In a way but she simply couldnt afford a NZ made dress costing thousands to get married in. ie I think too many ppl fail to see that lots of NZers simply cannot afford the prices  and hence drop out of the game.   Its going to be the same for oil.
Meanwhile Andrew Little agrees, maybe he should consider the other side of the coin to his members losing their jobs, his other supporters paying way over the odds to get stuff or not being able to.
What I do see is comments that commercial rents in NZ are apparently some of the highest. That retail prices are some of the highest and we see the wholsalers insisting items are sold at MRRP, yet NZers earn a low wage . All this adds up to rentier pricing and our Govn and the Opposition seems happy to enforce that monopoly.
"I assume its a Remuera thing" nope unless throughout NZ specialist shops are run by or only employ assh*les from Remuera.  The interesting thing is I buy online from NZ sites where I can and I have had some fantastic service and pretty reasonable prices off these ppl so I go back time and time again.   I dont know if the kiwi is going to get stronger, but surely retailers buying power also improves?  in which case of course their margins improve?

I think your low wage point is very important. Couple low incomes relative to the rest of the world with high housing costs (high prices and high mortgage rates) and you don't have much disposable income. This forces even the middle class to aggressively bargain hunt or go without.
Maybe vendors are just accepting low volumes and trying to make the money back on high unit costs?

We can't have kiwi consumers enjoying the benefits of a global market place - they must pay local price gouging prices + GST - they must. Those local distributors and agents have yachts to pay for.

I dont mind the GST, what I do mind is the poor choice, zero-competition market, the no interest in service and the price gouging. All the while we earn less than many.

There are a lot of comments of price gouging in this thread. Obviously all from people with no idea on how retail works. 
If we lived in a country with a population of 265 miillion I would agree on the gouging and selection comments, but we dont. Most retail is subsistent so if you are making less than 40% GP you are going backwards.
If local retail is not supported it will disappear, then how smart will you all feel, I guess the service complaints will hold water then.

I'm more than happy to pay a premium for quality goods made in New Zealand, and that's my preference, but if you think I'm going to pay premium prices for some garbage made by slave labour in Bangladesh, then you're out of luck.  And if you're being gouged in turn by your importers, distributors and landlord, put on your big-boy business pants and take it up with them.  
 

In some cases, even with GST it's still cheaper than buying the same product in NZ.  The likes of power tools, car parts and electronics.
My last purchase in NZ over the internet was a set of ABS sensors (4 of them) for my Peugeot car.  Continental Cars priced them at $180 each and five working days.  Jumped onto ebay and I got the same part from a Peugeot dealer in the UK, $54 each incl. postage and took 4 days to arrive.  Add GST, it is still cheaper.
 

Good luck to them.
For digital purchases of software/digital goods, there is no way in hell they can determine the transaction is eligible to be charged GST, if every party involved in the chain has servers physically located overseas, and the transaction happens over uninspectable, encrypted SSL. Most of the time, the remote party doesn't care which country I'm from, much less what the local taxes are.
Banks aren't going to suddenly add another 15% charge to all CC transactions (triple-dipping).
Even for physical goods, many things I purchase and ship here already get GST added by customs, and its STILL cheaper. Are they going to add another GST here, because I will still not buy from a gouging local supplier.
Are they going to remove the limits and charge GST on everything entering NZ?
That's a sure vote loser.
So where is all this extra GST that is not being currently gathered? I can't see how any scheme they propose would yield more than a few million.
If retailers can't handle the competition, they should close up shop. The world isn't going to accomodate last century's business models just because.
 

In the case of small digital things, maybe they should hang back a while and see how it works out for the EU.  Apparently the original intention was to bring big players like Amazon into the net for VAT, but in drafting the law they completely overlooked all the thousands of cottage industry people selling things like embroidery transfers and woodworking templates as pdfs to customers all over the world, and didn't set an exemption threshhold.  So theoretically, if I'm in the USA, and sell somebody in Europe a pdf printing transfer for $5, I'm supposed to get their full details, figure out the VAT for where they are (and it's different from country to country), then notify the tax people in Latvia so I can hand over pocket change. Good luck enforcing that.  Although it has resulted in a lot of small producers shutting up shop, putting all their stuff out there for free, or refusing to sell to anybody in the EU. 
If they make the same mistake and don't exempt small players, I imagine the negotiations would go something like this:
 
IRD:  "Oh hai, IRS.  We've come up with a genius new policy where tax agencies and huge corporations in various nations collect tiny amounts of tax from small purchases made by hundreds of thousands of different people in our tinpot little backwater that nobody cares about."

IRS:  "Good thinking.  Screw 'em to the floor, amirite?  Anyway, what can I do for you?"

IRD:  "We've got a list here of crochet pattern designers we're pretty sure sold pdfs to NZ citizens in the past year.  It's hard to be sure, but we figure you could check it out for us.  These scofflaws owe us sums of between 5c and $7, and we'd like you to track them down based on our sketchy information and collect the moolah.  When you've finished with that we can get on with the self-published eBooks and music.  Then maybe eBay and all the thousands of sellers on Etsy."

IRS:  "Go home IRD, you're drunk."

IRD: "No, this is perfectly legit.  Our best political minds discussed it in committee, then voted on it.  It's completely flawless and nothing could go wrong."

IRS: "Oh for chrissakes.  Well, if you insist."

Tapping of calculator buttons.

IRS:  "OK.  We've got enough on our plates trying to run those leeches at Walmart to ground, so you'll have to pay for the investigation, verification of details, prosecution, photocopying, and coffee.  It's going to come to about $100,000 per target."

IRD:  "But that's going to come to $500,000,000 to collect our pocket-change from thousands of small sellers that we haven't adequately identified!"

IRS:  "Well, you made the rules.  Poop or get off the pot."
 
Really, I don't see the problem with continuing to collect GST for shipments that go over the break-even threshhold, and letting it go when it's more expensive to collect than it's worth.  That's the most practical way.  If they want a cut of iTunes or Amazon sales, then find a way tax their profits.  We all know perfectly well that lack of GST isn't why we shop overseas, whatever nonsense the retail lobby may be spouting.  We shop overseas because we're overcharged locally for poor quality and bad selection. I've happily paid up GST for imports over the thresshold, and slightly more resentfully coughed up the extra ransom to get my goodies out of Customs.

LOL, great one and I totally agree.

Absolute dream.....gummit playing catchup to a much smarter market. Inevitable that a property/asset tax will need to happen. Gst will be easy peasy to avoid....Bitcoin and an overseas vpn etc as a start....multiple other ways.  I see this as politicking to retailers and no more. 

Another aspect that comes to mind is that if the GST payable threshold is lowered substantially with a standing charge per shipment (currently about $50) maintained this may well increase offshore online purchasing.
 
If a customer is going to be charged ($50?) in addition to GST on any purchase and the threshold is too low to be achieveable then it becomes more economical to spend big. $50 on a $50 spend is probably prohibitive but it becomes inconsequential on a $1,000 'shopping cart', and as raised by many previously overseas prices are still more than competitive even with 15% GST. Many large online sellers also discount shipping charges for larger orders so another reason to spend up.
 
If this issue isn't very well thought through it could very well blow up in the government's (and NZ retailers) faces!

Yes its $50 roughly, exact GST price is on the Customs website calculator, works out to within a few cents every time for me.  Also on some goods you can pay a tarriff, this calculator does that as well I think. 
http://www.whatsmyduty.org.nz
 
 

I don't know why everyone is reacting so negatively.  JoKey has set a new GST rate, yesterday, of around 1.5% following on from the quote in this article and reaffirmed in his comment on TV1 News last night.
JoKey quote: 
“Ultimately, you could get to a point, for instance, where, if you think about iTunes, if you download a song and it's a $1.29 or whatever it is, then there is no reason why the GST shouldn't apply to that. Now, in reality, the GST would be two cents - but actually two cents over a massive number of transactions still adds up.”   
The collection costs for such an endeavour will be astronomical and very difficult to police thereby significantly reducing the sums expected by Govt. from this venture.  So it is really about appeasing the retailers.  15% won't stop most people from purchasing overseas as purchases will still, in most cases, be cheaper and as has been pointed out in preceding comments people will still want things that cannot be obtained through local sources.  
It will be interesting to see the impact on the Govt's popularity following on from this proposal.  This one is easily understood by most NZers and affects most of them even though it is small fish in the overall scheme of things.  We have seen this Govt. reverse their 'floaters' before after negative feedback.

I cannot help but think of that classic......"One flew over the cuckoo's nest" !!!!
 

funny but every time I see a post of yours that is one that springs to mind.

You must be getting dizzy with all that spring in your mind.......have you tried to stop trolling?
 
 
 
 

Question; would a Money movement Tax be more effective?

I think at some stage there should be a recognition that the historic system we have cant "grok" how things work today and that its been that way for 2 or more decades. What is concerning the Govns now is that the plebs like you and I are now doing what their corporate funders have been doing for years if not decades, avoid tax and if successful there is no one left to tax.
So yes I wonder if considering some un-dodgable, progressive and fair method isnt worth while.
My first Q is how do we do a progressive tax system with a movement tax?
 
 

In proposing such things, apart from the obvious that price settors would just pass on costs to consumers, and price followers would be the ones getting squeezed,   consider that Taxation is often proposed to reduce activity in a certain area.   eg carbon taxes, or wage taxes, to reduce effective economical growth in their area... a Money Movement Tax, would thereefore force people to find alternative ways to survive rather than Money Movement.