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GST losses from online, offshore purchases surpass $200 million

The reason for growing government concern about lost GST tax revenue due to online, offshore purchases can be seen in recent economic data.

The most recent 12-month period saw an estimated $1.357 billion worth of purchases by New Zealand households of low cost goods online.

If bought within New Zealand, that would have reaped the taxman GST of $203.55 million.

The $1.357 billion is a 13.7% increase on the previous 12 month period: if the rate of increase is maintained, it adds a further $185.9 million in spending, and, if GST were levied, a further $27.8 million to the taxman.

To put this in perspective, the projected surplus for the government in the 2014-15 year is $86 million.

The issue of GST on offshore, online purchases was raised by Finance Minister Bill English at a parliamentary select committee this week, indicating the question is very much on the government’s agenda.

When Labour, fresh from suggesting the government should ban Facebook in order to target possible tax malfeasants, raised the question of that company and others avoiding tax, Mr English said a bigger tax issue is New Zealanders being able to buy goods online, from overseas, and not pay GST.

Local retailers have been pushing on this issue for some time: late last year local clothing retailer Hallenstein Glasson chief executive Graeme Popplewell said the lack of GST on online, offshore retail sales is a “failure of the tax system” and that the revolution in the way people now shop means the government cannot afford to avoid this issue much longer without damaging local firms.

More by Rob Hosking

Comments and questions
22

To buy in New Zealand the items need to be available here and in my experience the DVDs/CDs I've purchased through Amazon (UK and US) have never been or will ever be available in this country. The few remaining retailers in that area hold a limited range. And when I've asked local suppliers (as I often do) the consistent response is that they've not even heard of the artist(s).

And, to be frank, I don't believe for a second that this is costing more in lost tax than could be earned from the various overseas corporates which have licences to operate in this country, without the obligation of every other citizen - to pay their fair share of taxes!

Buying online is not the issue. Collecting GST on the import of overseas product is.
If we could rely on good old fashioned "citizenship" so that all paid their fair share of taxes, we could adopt a voluntary disclosure and payment regime by the "importers" of the overseas product. However, I suspect that people would adopt a similar mentality (as the overseas corporates) of minimising the taxes they pay by not volunteering tax payments unless they are compelled to.
Just because overseas corporates are an easier target group than the myriad of online shoppers, it doesn't make the online shoppers any more righteous in not making tax payments.

Whats the bet this becomes an election issue, if its not already?

Back of the envlope maths, but.... assuming average purchase of that 1.35 billion is $100 thats 13.5 million Customs Entries that need to be entered and GST / Duty collected. A Customs Broker can do about 20 a day, say 5000 a year. , assuming they are easy. That would require 2700 Customs brokers to clear 13.5 million shipments..... assuming average salary of $45k , thats $1.2 billion in Salaries to collect $200m in GST.

Thanks - this is my point exactly. Time to use some common sense.
Oh, that's right - we're talking about Politicians here! LOL
They have no common sense - just political motives...

Why would you need a Customs Broker? Couldn't the banks simply add GST to the purchase at the time of the transaction, on your credit card?

If you tax via credit cards people will quickly move to payment services like Paypal, World pay etc who are not covered by NZ customs jurisdiction.

Not to mention a blanket tax on say Amazon purchases would tax people incorrectly as Amazon is agent for many sellers of used items that are GST exempt etc. that's why you'd have to physically identify and tax via customs brokers etc and it's not worth it for the money it would collect.

The difficulty is in identifying which transactions to charge. Any foreign transaction - including your Aussie Hotel bill or that coffee you have while in Paris? The Credit Card companies don't know what you're buying or where in the world it comes from, other than it's FX, so it would be impossible. You could identify specific merchants I guess but that would only push people towards using those not on the list....

This is a real problem - and not just for NZ. While customs can track and add GST to physical goods crossing the border, the real loss is in the purchase of digital goods and services - which if delivered electronically never pass a customs point. So a print book from Amazon can be tracked and GST levied, but an electronic one can't. Now look at services. What if NZer purchases legal services from a firm in Australia. The Australian firm has 'exported' the services, so it is zero-rated. The NZ IRD will not know that the purchase has been made. If an NZ firm supplied the services, they would levy GST and pay it to IRD, but the NZ consumer would not willingly reveal this information. This is because GST, a tax on consumption in NZ is (for collection ease) levied on the last producer in the chain as a proxy for consumption. If that last producer is not in NZ, then the tax is not collected and paid to the NZ revenue because the proxy collector is not subject to NZ jurisdiction.

This is not a new issue. Indeed it was presaged in an ISCR report in 2000. http://www.iscr.org.nz/f236,4764/ISP_taxation_230700.pdf. ISCR did further work on this in 2013 http://www.iscr.org.nz/f858,22567/A_Proposed_Pathway_towards_future_reform_of_New_Zealands_de_minimis_threshold_ISCR_Will_Steel_2013.pdf

As NZ is ultimately a net importer of consumer goods, and is increasingly an importer of services, the effect can only get worse over time.

It mystifies me why this tax is not collected already.As a commercial importer I pay Customs GST and every two months my automated bill to Customs Dept is direct debited from my bank account. Why should those who buy consumer goods offshore not be subjected to the same ritual ? The incoming goods are already subjected to surveillance and inspection, why not taxation ?

Simply because it would be a net loss. It is easy to levy taxes on businesses that regularly import high value items through business channels; but low value items coming through the post / courier services take a lot of work. This is why we have a deminimus as to the amount to collect - as anything below that will cost more to collect than it raises.

Question. What would people rather see? The introduction of a capital gains tax to make up for a shortfall in the tax base, or New Zealanders paying their fair share of GST on their online offshore purchases? Of those who want a capital gains tax introduced, how many own rental properties and how many buy things online from overseas?

Um, neither? CGT puts puts off investors; GST on sub-$400 online offshore purchases costs more to collect than it brings in.

Rubbish. A broad-based CGT would not put off investors. There may be a market correction when introduced, but it will then become part of the investment equation across the investment spectrum. The issue will be if CGT is levied on some investments but not others, thereby creating a mis-match. Agree with your other point though. Time to consider a transaction tax rather than GST. Administered via banks on all monetary transactions so would capture everything including overseas purchases.

How do you accurately make an estimation like this?
What is the actual GST take on goods that were over the threshold where Customs did collect the GST?
It just presents more questions when you base statements on estimates.

Interesting that NZ Post (owned by the Government) actively promotes offshore purchasing through its YouShop USA address service. I just received a promotional email from them today. Perhaps Bill English should talk to the Chairman of NZ Post - Sir Michael Cullen.

The simple answer is to discus with and if needs be facilitate companies like Amazon to pre-stock the main NZ Sale Items in NZ and create Amazon.co.nz on which gst would be paid. This is what they do in the UK and VAT (20%) is paid on every purchase and every delivery. Of course the UK is big enough to warrant a UK presence on a full range of products. Note that Amazon also fronts lots of local shops - e.g. when in the UK I buy cheese from a local UK producer and many other small business products.

NZ might be too small to have the full range of products and maybe too small for Amazon to set up without some lobbying and facilitation by the Government - but it is worth a look at with companies like this - we have 200 Million worth of encouragement. We don't need to stop every given avenue but if we could say by encouraging Amazon claw back 50% of of the money and the ongoing increases it will be a step in the right direction and may even provide more jobs - (well move some jobs I guess) . We have to move forward on the technological revolution - it is getting faster and more expansive, The genie is way out of the bottle.

If we get lucky, the prudence of internet shopping will kill the state.

If only the retailers are not greedy. A sander selling for 250GBP in the UK, and selling for 667 AUD in Australia, is selling at 965+GST in NZ. Go do the sums.

It is not the retailer being greedy -. In most cases it is the buy price NZ companies are paying as we are a small market and haven to got the buying power to get lower initial costs . I

Yawn, that is a lame excuse that retailers give all the time.

You look at Warehouse, they do parallel import, they can get prices cheaper than NZ suppliers. Uncle Bill shops do the same as well.

Or you can import cars cheaper than what they can get in NZ. Eg Land Rover.

There is a high end tools supplier (start with F and end with L) here in NZ who has distribution rights both in NZ and Australia. They have price differentials of 20% between here and NZ. Should the price not be the same if you include the GST difference?

So if we are looking at this, why not charge GST on exports?
I think that these overseas purchases actually help keep prices and inflation down. Parallel imnporters have also played a good role in exposing the rips offs for instance in the new vehicle market.
People dont buy form overseas because of any saving on GST. They buy because the price is significantly better. They dont have to buy from the NZ subsidiary of some Aussie agent who is creaming profits because of poor competition in these two islands. Fiddling with GST on imports will change nothing and cost more to collect than the cost of collection.