Apec-wide deal on e-commerce tax avoidance proposed

A new international pact to ensure taxes and customs duties are collected on goods bought online is proposed in new research by Victoria University's New Zealand Institute for the Study of Competition and Regulation.

Commissioned by Booksellers New Zealand, which has been battling falling local book sales because of the onslaught of imported product ordered online and escape the 15 percent rate of GST, the paper suggests the Apec trade grouping is a logical place to start working for such an agreement.

The paper is attracting political and official interest because of the growing threat to the tax base caused by the global growth of online retailing.

While it was "conceptually attractive" to get credit companies and banks to collect taxes and duties on goods crossing borders, it would be costly and impractical, the ISCR paper says.

"We believe the most promising long-term solution is the establishment of a multi-lateral agreement through Apec or other international organisations designed to encourage, rather than force, online firms to collect and remit sales taxes to the respective nations."

First public airing

The proposal got its first public airing at a seminar in Wellington yesterday.

"We believe the establishment of such a system is feasible, given the worldwide nature of the problem," says ISCR, although it says the World Trade Organisation would be too large a body to try for such a deal because of the difficulty of agreement from a very large number of nations.

Apec is a 21-member association of Pacific Rim economies, including the US, Japan, China and Australia. While the institute concedes that leaves Europe and Britain out of the arrangement, it may be possible to involve the European Union as a bolt-on to such an initiative.

The alternative is to let retailers suffer the inequity, in New Zealand, of overseas, online suppliers maintaining a 15 percent price advantage over domestic retailers.

The report cites research showing New Zealanders bought about $3.2 billion online last year, with growth of 14.3 percent and an annual total of perhaps $5.4 billion by 2016.

However, it also concedes the proposal would not capture sales of non-physical products and services online, such e-books, downloaded music or software downloads from offshore. That would have to be a second leg of such a multi-lateral push, ISCR suggests.

Time to act

However, it says it is time for governments to act, since "consumers are increasingly purchasing goods offshore for the primary reason of avoiding GST".

If that loophole were removed, according to research cited by ISCR there could be a drop in offshore, online sales of between 45 per cent and 60 percent, offset by an estimated sales increase of 27 percent for local, online retailers, who would automatically be accounting for GST.

"Not only would government revenue rise, but domestic retailers would be revitalised, resulting in increased employment and higher company and higher PAYE tax revenues," the report says.

Such a multi-lateral approach would also see a significant streamlining in border control procedures, freeing up postal and customs agents from working out whether duty is payable on imported goods to detecting illegal or unwanted imports.

The study suggests global online retailers would join the scheme because they would benefit from faster, lower cost deliveries.

"The most promising method for attracting voluntary compliance is fast-tracked processing of goods coming through the border."

However, there would need to be checks on retailers fraudulently charging customers for GST and not paying it. "We do not have an easy solution."

The paper is also critical of current customs and GST thresholds, which are difficult to apply in practice.

At present, goods attracting duties and tax of less than $60 are exempt from paying such taxes. However, because some goods have duties and others are duty-free, this means the threshold can range from $226 and $399.

"We strongly recommend changing to a minimum value threshold," ISCR says.

(BusinessDesk)

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Books are still about 15-50% cheaper on Amazon, even with shipping & GST. NZ book sellers cannot compete with a business built for an audience of 300+ million people.

Cheap oil is the enemy for local businesses like these - if they want to attack something go after the cheap oil.

Some business models die, not recognising it is the problem.

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However, it says it is time for governments to act, since "consumers are increasingly purchasing goods offshore for the primary reason of avoiding GST".

Wrong - better selection and cheap, even if GST was added.

I don't see how their proposal will work. If you aren't part of the voluntary scheme, the package gets stopped at customers and GST is paid, even if the amount is small and the compliance costs exceed the benefit.

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I'm generally with Anonymous #1. This article provoked me to look at the paper, presentation and policy recommendation documents referred to. I'm not that comfortable about some of the material.

Unless there is any real and sound data to support the bare assertion, I find it hard to accept that "consumers are increasingly purchasing goods offshore for the primary reason of avoiding GST". This statement appears in the policy document "A Proposed Pathway towards future reform of New Zealand’s de minimis threshold." It appears to be based primarily on assuming that US research on sales tax applies to the New Zealand business ecosystem. I am, however, reminded that the person who pays the piper gets to call the tune...

In fact, the report (which is available on line) does not draw this conclusion. The writers similarly draw a conclusion on avoiding GST by extrapolating from offshore literature surveys and based on the same assumption.

In other words, no independent NZ research supports this conclusion. With the utmost respect to the authors, who indubitably have executed their commission, the policy behind New Zealand's GST collection system by NZ Customs should be based on some sound local analysis. Without it, no policy cost benefit comparison can be more than speculative.

I personally believe (I think like Anonymous #1) that offshore prices are reflective of the economies of scale available to businesses catering to larger markets, to the elimination of margin stacking through middlemen who add little value and the substitution of website shopping arrangements for the premises and labour costs of high street bookshops and other retailers.

In fact, the limited stock and almost non-existent broader product knowledge and service culture in almost all chain bookstores and many other local turnover driven businesses, more often than not makes local shopping an inferior experience.

The online market place, like the onshore one, has wide variation in product pricing. Ultimately, branding is as important online as it is in bricks and mortar shopping. In general, the real saving is in the elimination of margin stacking in the cash price, and in the improved choice and shopping experience. Please note, I would very happily pay GST if Customs NZ collected it because I would still be better off both in cash and customer satisfaction terms. I know that they don't because the transaction cost of collection outweighs the revenue to be collected. Think about the current furore over carparks, mobile phones, laptops and iPads .......

As Anonymous #1 noted, the business model for non-value add retailing is like the fate of dinosaurs after the asteroid hit - complaining about the cold, but ultimately still doomed! This observation might perhaps with equal relevance apply to the music and movie industries amongst others!

I do very happily and willingly buy from more specialist onshore businesses which add real cash and other value to my purchase experience. Perhaps this should be the real take-out for the Bookseller's Association.

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So how do the retailers win when people don't import their books through Customs and instead buy e-books. The only way to tax that importation would be to hit them through the credit card companies or Paypal, which would not be an easy ask.

I notice the retailing associations are always jumping up and down about people importing small-value items from overseas (personally, I only bring in items I just cannot buy in New Zealand as I do like to keep NZ working) but remain silent about the increasing prevelence of jewellers dodging their GST resposibilities by setting up collection shops at the airports, giving away tickets to Sydney with certain rings and generally advising their customers to purchase large-ticket items when they are going on holiday to avoid the GST. This is plainly against the intention of the GST Act to apply GST to consumption in New Zealand. Let's close up that massive hole first - which is really easy to do - then we can look at the hard stuff.

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As a buyer of goods online, the only consideration is the actual price paid in $NZ to get the goods into the front door. In some cases the items are less that the Customs threshold for collecting GST, but in some cases the GST is many 1000s of dollars and it is a simple matter of market efficiency.

Any seller of an item, whether wholesale, retail or licensed distributor, will have to get their sums right. So long as you have access to a credit card and the www the barriers to commerce are unlimited.

For example, Police glasses frames from Mortimer Hurst $400, from OPSM $299, from www.smartbuyglasses.co.nz $156 delivered.

And to make the customer experience as good as they can OPSM refuse to let the frames leave the shop on apro even after I offered to pay for them in full just in case they got any damage. Go figure? The way to get the money is meet the needs of customers at a realistic price, and if you can't the market will inflict its wrath.

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Just when we were starting to get some efficiences and realism in local retail.
Cost and quality are the issue ... better stuff at half the price is the reality and 15% is the pretext, although this govt, particularly, is infatuated with GST and looks the other way on fuel gouging, etc, to get more cream off the top.
Pathetic, really.

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If you read the paper on customs collection, you will see that it is not at all clear that the realignment of the value of imported goods proposed means it will cost more to collect GST on physical imports than currently. As it stands now, goods have to be inspected to determine whether they are subject to import duties and then depending upon the value of the items (including import duties) GST liability is assessed. Removing the distinction between items attracting import duties and those not actually reduces transaction costs at the border and will speed up the time it takes for consumers to get their goods. This is why countries such as the UK and Canada can cost-effectively impose VAT at the border on goods with very much lower value than that imposed in New Zealand.

The thrust of the paper is not to deny consumers the variety of goods available to on-line shoppers - just that the goods purchased online by (say) 10 individuals none of whom pay GST should be taxed in exactly the same way as if the 10 items were imported by a single NZ retailer - who has to add 15% GST when selling the items in New Zealand (even if no further margin is added for the services provided in getting the item here). The more GST that is lost as consumers substitute off-shore for onshore purchases, the higher must other taxes rise to compensate the government for lost revenue. GST may rise beyond 15%, income taxes may rise, or we see more flawed proposals such as car park and cellphone taxes pursued. By comparison, this is a low hanging fruit that means more tax can be collected at the same time as enforcement costs are likely to reduce in total.

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Regardless of all the other factors at play in the global world of retail surely our tax system should not favour offshore retailers who don't contribute 1 cent to the NZ tax base? Surely an equitable tax system would allow NZ retailers the opportunity to compete on a level playing field. Isn't that the least they should expect?

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Fonterra charge us international prices. When last did you buy any fish....they've gone 'global' too (stratospheric, some might say).
Aussie food chains might price in NZ$, but they adjust the mark-up to cover the A$ gap at the profit line back in Ockerville.
So what's with the one-way ruling against the pleb in the street????

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This is just a power puff piece of propaganda for NZ retailers (Booksellers NZ). Hanging your hat on GST is laughable! What a poor argument -- there is nothing logical about it. You guys need to get a bit more creative.

On the whole, prices abroad are far better than GST inclusive prices, even including customs duty on items that attract it. So this will not stop people buying items online (from abroad).

NZ retailers could always drop ship to take advantage of those better prices (especially for online shoppers). Or look at your market as being "the world". And/or get shareholders who aren't as greedy as banks, power companies, etc.

Fishpond do a pretty stellar job with their free shipping and prices that are often comparable, if not slightly better, than landed items here from Amazon.com. So Fishpond have obviously got it right. Maybe the rest of our retailers need to look at their model.

And do you think shoppers are going to give their custom to local retailers if they feel forced to (by draconian laws and over zealous governments)? No way, you're dreaming. People vote with their wallets. Just up your game or get left behind.

I do feel for local businesses and their staff, though. I personally support local whenever I can. But my taxes do, too, along with every time I step outside my property I am hit by some other tax forced on me. (No wonder there is so much tax avoidance and evasion.)

Retail is one of the hardest games to be in because there is now jack loyalty out there and a tonne of competition. So what do you do? Not the same that has got you where you are now. Look at your business differently to see how you can better meet the market and win over customers with your new, better approach. And grow a lovable personality/brand while you're at it. There are plenty of good creative companies out there that could help you do just that. Good luck.

There has to be a better way to get more tax out of people (as if we don't pay enough already). Or perhaps governments need to stop being such useless Muppets at managing money, projects and the economy themselves. Sheesh.

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