Raising or removing the GST threshold on imported goods has been a hotly debated issue over the past few years.
While consumers prefer the status quo, as it reduces their ultimate cost of purchase, retailers have been banging their drum about the competitive advantage it creates for foreign suppliers and are seeking a removal of the exemption threshold in its entirety.
The government will always consider additional revenue streams and have been seriously contemplating the GST threshold level – although it looks unlikely there will be any adjustments in the Budget as the promised review has now been pushed beyond the election.
Although I agree the threshold should be removed, I disagree with the rhetoric the retailers would have us believe. The issue has little to do with removing the “competitive advantage” of overseas retailers over their New Zealand counterparts.
The reality is that the price difference on most online purchases far exceeds 15%, even after adding in the cost of postage or freight, and there are a myriad of other more significant issues the traditional retail model is facing, beyond the GST issue.
The debate is about capturing taxes on goods consumed in New Zealand. GST was designed to be broad and apply to most goods and services. It is now an integral contributor to the government’s finances (18% of total revenue).
If you live in New Zealand, you need to be contributing toward that privilege. It shouldn’t matter whether goods come from a New Zealand vendor or an overseas one, the tax cost should apply equally to both.
I completely understand the rationale for the existing threshold; why have a tax that exceeds the cost of collection? But the UK and Canada have low thresholds (£15 and $C20 respectively) and much larger populations. It can be done.
Smart online providers will adapt their approach to ensure the shopping experience is streamlined for their customers. We only need to look at one of the largest e-tailers, Amazon, to see how easy it can cater for the removal of the threshold. Its online system is already geared up to calculate the likely import fees and taxes on your purchase – and this is built into the purchase price on checkout.
Removing the threshold may frustrate the buying experience as it could delay the delivery of the goods and will obviously increase the price – but that’s not reason enough to dismiss the idea.
A recent survey by the New Zealand Retailers Association estimates online spending is more than $5 billion and about $1.6 billion of that is electronic downloads (the majority being from overseas providers). It’s estimated about a third of the $3.4 billion goods purchased online are from overseas suppliers. And this trend is only going to increase.
Capturing GST from electronic downloads may prove more difficult. However, we are living in a world where boundaries no longer apply and there’s an app for everything imaginable. I am sure someone will invent a suitable way of capturing the GST on these purchases, too. Perhaps some of the $1.5 billion Inland Revenue is investing in its new IT system could be spent on this.
Can we, and should we, turn our backs on additional annual revenue of $300 million for NZ Inc? Surely, this is reason enough for the government to take some action on this issue.
GST is an extremely efficient tax – but the world has changed and we need to realign the system to ensure that efficiency continues. As David Lange once famously quipped: “Even drug dealers pay GST.” In my opinion, online consumers should, too.
Dan Lowe is an associate, tax, at Grant Thornton New Zealand