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Online spending eroding NZ tax base more than multinational avoidance - English

The growing worldwide digital economy is putting pressure on New Zealand's tax base, though online retail is a bigger threat than multinational avoidance, according to Finance Minister Bill English.

New Zealand is part of a multilateral effort to clamp down on income shifting by the likes of web-based giants Google and Facebook, who have garnered international attention for their complicated tax structures, English told Parliament's finance and expenditure committee.

A bigger threat to New Zealand's tax base is the increasing use of online retail spending, which avoids the country's 15 percent goods and services tax, he said. What made both issues murky was that traditional jurisdictions were muddied by the questions over geographical and digital boundaries.

"The most urgent issue is not the large end of town, it's the small end of town, it's hard-working mums and dads spending on the internet," English told the committee. "We have to resolve both of those issues."

Retailers have come under pressure from online sales, with apparel in particular struggling to compete, and have called for the tax department to be more stringent in collecting goods and services tax on New Zealanders' purchases from overseas websites.

The government raked in a smaller than expected tax take of $23.88 billion in the five months ended Nov. 30, due to lower corporate and GST tax revenue.

Treasury officials are picking accelerating tax revenue growth as an expanding labour market provides more income tax, and as rising wages encourage households to ramp up spending, fuelling the GST take, according to the half-year economic and fiscal update.

Speaking directly after the minister, Treasury chief economist Girol Karacaoglu told the committee New Zealand's economy was facing strong immediate growth, though that would temper to a more moderate pace in the coming years.

He warned against profligate government spending, which would put upwards pressure on interest rates that are already set to rise and an elevated currency.

"We might be a rock star, but we don't want to be a one-hit wonder," Karacaoglu said.

One of the measures the Treasury put forward to foster the country's tradable sector was in growing international connections across all policy areas, including education, infrastructure, immigration and overseas investment, he said.

"Everything we're looking at attempts to connect the New Zealand economy better with the rest of the world," Karacaoglu said.

(BusinessDesk)

Comments and questions
56

Amazon is 20 years old this year. The revenue authorities of the world have just realised on-line retailing is a challenge under existing international tax laws ? Well done!

That is not correct. When I lived in America in 2000-2001, it was already exercising the minds of State governments as Amazon and other online retailers were not charging state sales tax on online purchases. I'm sure they have done something about that by now, but the issues were already well flagged back then. And they remain exactly the same as the ones we face today.

In the US isn't it the case that where you buy from an out of state retailer that you have to declare sales tax in your income tax returns?

That was my point. There is a difference excercising the mind and taking some sort of action. The revenue authorities have been far too slow in reacting to the inevitable - more so in the international tax area than local state taxes. In terms of sales tax it is my understanding that sales tax is not levied on a destination base (i.e. only sales from Amazon to purchasers in certain states are subject to sales tax) presumably where Amazon has a presence not on a global US basis but I could be wrong on that.

Most online shopping is not done to avoid the 15% GST, and even then it is avoidable only for smaller purchases. Maybe reduce the limit a little,and police it more vigorously, also tax apparel brought back by travellers, currently a significant tax rort by the wealthy. We don't want to become like Britain where draconian taxes and service charges are imposed even on Xmas presents from overseas. Likewise some of the companies complaining most vocifereously about competition have tired stock and retailing practices and really need to think carefully why anyone would risk getting distressed stock from Hong Kong rather than shop at their stores..

Not sure that would work, unless you plan to record what every single traveller is wearing and what is in their suitcase when they leave. That would be the only way of proving what new clothing is being brought in to the country.

Don't worry Billy boy, agenda 21 and the new boss of the world Helen will sort it all out.

I was making comments about this 5 years ago.

The other side of the coin I have noticed is how many small "mum & pop" type businesses are setting up Paypal accounts and selling all their goods without GST even though they are local.

These type of businesses use to operate out of TradeMe but lately they are all over Facebook and doing well.

I know the IRD worked with TradeMe some years back to educate sellers on when they were obligated to pay tax.... but I can't see Facebook taking the time to do the same considering they are already giving them the finger.

Don't worry about Facebook. Labour are going to ban it, or blow it up, or something like that when they get in. For pure entertainment - vote Labour.

If I buy from an oversea business online do they not pay GST/Vat and income tax in the country of sale? Does the imposition of GST not tax me twice?

They do not pay tax in their own country on exported goods.

I buy my shirts out of a UK website. The price includes UK VAT. Still about 1/2 the price of buying local. Even if NZ GST was imposed I would still buy from the same source.

I wonder if the respective tax regimes have investigated how many retailers actually do charge GST/VAT for online purchases that are then shipped overseas, and are pocketing the tax element of the cost as extra margin in the background?

The attraction of a sales tax, such as GST, is that it can easily be levied at the point of sale and is relatively fair for everyone. Enter opportunities for cross border transactions, or ones where there is not the ease of levy such as on the internet, and the broad appeal of the sales tax diminishes.

Of course, it is always a guess how much the tax base is impacted, though at a macro level it can probably be estimated reasonably accurately. Too bad the article didn't clarify how much moola we are talking about here.

The question is about fairness: create a system that has a tax payment mechanism, and allow alongside one that does not - it builds in unfairness to certain businesses and consumers alike.

Is it time to consider a different tax all together? Is there one that is more fair than the GST? Is it better to have stop-gap measures to close loopholes, or to begin again?

The value-add nature of GST ensures that leakage through the black economy is minimised to the tax on the 'value added' - so if a chippie does some cash work for you he hopefully pays GST on the supplies he buys for your job - and the same will apply to those mom and pop businesses on FaceBook. The difference with the purchases from offshore is that those suppliers give the NZ taxman nothing on their inputs, so the leakage is more significant.

I love the simplicity of NZ's GST system. It imposes a high cost on business, but at least the system is straight forward. The transaction cost of capturing internet transactions would probably exceed the revenue that would be generated.

I suggest a self-declaration on our income tax forms. It would ask for the amount that you purchased on the internet on which you didn't pay GST, and you would be levied 15% of that amount. You have to back up your number with your credit-card accounts. The onus would be on the tax payer to make an accurate declaration.

Oh yes, the other thing I like for simplicity is NZ's personal income tax system, which my proposal would destroy.

Clearly some hard thinking is needed.

What a load of crap ... mutli-nationals are just HARDER to extract money from... poor joe public is far easier :/ sad sad sad

Fairfax paid no tax at all last year on revenue of A$2.01 billion. or the IRD is battling APN (NZ Herald) for $48 million tax....and English wants us to believe mum and dad are thrashing multinationals with billion dollar revenue. Either we are in deep doo doo trouble as he has real competency issues, or he is a liar and running some sort of smart ego driven agenda.

If the Government stopped gifting away assets, or plugged the massive mineral and petroleum royalty sham, or actually checked valuations like Solid Energy for accuracy, or gifted billions continually under the Treaty, or stopped finance sector and insurance multinationals defrauding consumers, then it might actually have billions in the coffers. But no - that's too hard when it can just dig into the taxpayer pocket with little accountability.

Really the way NZ Government operates in NZ is bizarre, but not as bizarre as the way the people sit back and take it. Sheep follow sheep in a small farming South Pacific Island....and so the multinationals follow each other with the directors of banks and other big swollen corporate operators pulling multimillion dollar compensations.

When are they going to go after the real tax dodgers? The ones that can actually afford to pay their taxes but avoid doing so.....

The usual bash the rich (successful?) by implication. The top 10% of taxpayers already pay around 45% of all income tax, but Labour/Greens say that is not a fair share and want more.

The top 10% actually pay 71% of all income tax. More interesting perhaps is that the top 17% of earners pay 97% of all income tax.
http://www.kiwiblog.co.nz/2011/07/net_taxpayers.html

Thats because the rich earn most of the income

Quite right Lindsay. In fact, the top 12% of households pay 76% of net income tax, since virtually everyone earning under $60K pays no tax since they get it all back from the Government via various handouts including WFF.
RachNZ has some warped view that these 12% somehow get away with not paying tax, and do it deliberately. A view often held by those who expect others to live for their benefit.

A lot of assumptions in your statement. I expect no one to live for my benefit. I in fact pay secondary tax in my 2nd job.

It's not bash the rich...some of my best friends are rich.

Yes - several Unions come to mind.

Supposedly the MWU was up to 7 years late in filing their annual financials. Last I heard, they were "only" 5 years late.

And most are so unclear and obfuscated, the Registrar recently set-up an entirely new section for them to be classified under and to be held to...

...and the unions here in NZ and in Aussie finance their respective Labour Party's. And just look at all the corruption the authorities are discovering over there between union leaders who become Labour Party MP's...

Birds of a feather?

>"The most urgent issue is not the large end of town, it's the small end of town, it's hard-working mums and dads spending on the internet." - Bill English

That has to be the most stereotypically *expected* statement English could possibly make (by the large segment of the public that sees these bods as pandering to corporate and American interests).

Where are his figures breaking down how much tax is missed out on from large corporate tax avoidance versus people doing a percentage of their sub-$500 item shopping online? The article notes that revenue from corporate and GST are both lower than expected.

Why jump to the conclusion he needs to clamp down on online retail spending, but not worry about big companies? (Implying lost GST from small purchases online is a more major than corporate avoidance.)

>"Treasury officials are picking accelerating tax revenue growth as an expanding labour market provides more income tax, and as rising wages encourage households to ramp up spending..."

Ah, so unemployment and low spending are actually the big factors?

I genuinely expected better from English. This is thin.

Where is your evidence that there is in fact any tax avoidance The Horse? You just saying that there is, does not make it so. If you took time to examine their accounts, and you can bet that the IRD have done so to the nth degree, you would find that they are kosher. The IRD climb all over transfer pricing and other income shifting mechanisms like a bad rash. You should believe less of the nonsense that comes from the Labour and Green Parties and do some research of your own.

Does this mean Bill can't multi-task. What's wrong with catching both groups. Or is this just another way for National to screw the little bloke with more tax?

Why is the criticism always about the purchasers importing goods bought overseas?

The finger is never pointed at the retailers who are selling inferior products in New Zealand compared to overseas retailers and at much higher prices than overseas prices.

Maybe if New Zealand retailers concentrated on raising the quality of their goods being sold and / or lowering their prices there would be less goods imported from overseas.

NZ retailers need to stop complaining and start competing within the global marketplace which now exists.

Agreed. We live in a global economy. Online shopping overseas will only increase. What makes me shop online is not the potential GST savings (which customs can get off you anyway) but the range, quality and price/discounts. No surprise that apparel retail here is struggling. Nor companies that import products from overseas, add no value but slap on 200% to the purchase price.

Well don't forget even retailers have to pay for that big fat mortgage they took out on that grossly overvalued house they had to buy in Auckland because everybody else has been running around like a cat chasing its tail bidding up the price of housing with borrowed money. And don't forget there's the loan on the SVU, and all the overseas buying trips they have to do each year. It all has to be paid for.

I would be impressed by any retailer who owns a Special Victims Unit.

Maybe they can help our own police out while they're raiding possible copyright violators' houses .

My wife wanted a Swarovski necklace for Christmas this year. Had a look in the shop and it was $300; went home and looked up online - I could buy it in the states for US$90. So. I bought it online and had it shipped to a forwarder, who posted it here. Total cost was less than half of the NZ price.

I'm not doing that to avoid GST; I'm doing it to avoid being ripped off by shops in NZ.

Not really the point though. It's about tax gathering not whether local sellers are better or worse than overseas sources. GST may well become a dinosaur tax. Time to look at a transaction tax.

GST is a transaction tax.

I agree with Anonymous. NZ retailers fleece us. Overpriced and outdated product lines.

The politicians can and will always find ways to raise taxes....so they can spend what they haven't even earned yet. But we can atleast choose between the bad and the worse. But retailers?

I was not an online shopper. Now I will be,

Absoultley agree. I just bought a nexus 7 for NZ$70 less then I can get if for in NZ even if I had paid GST on it. Same story with clothing, shoes, etc. Too many retailers here have a model based on high margins and low volume and that is just not going to cut it anymore.

You missed the point.

National/IRD dont care if you buy overseas.

However, if you consumer it in NZ, then they want to collect GST on it.

It isn't about protecting industries or jobs, it is about collection the correct amount of tax. HOwever, for administraion purposes, there is an exemption from GST where the amount imported is less than ~$400.

I really find it hard to believe that Multi National tax avoidance is less than GST losses. How about facts to back up this statement?!
GST is charged at the border now for items over a certain value - customs intercepts imported goods. You have to have a trade-off between the cost of collection and the amount of tax collected this way. Lets be sensible here Bill English!

What a sick joke English is. What games they play to hit the tax payer, rather than the multinationals who make large donations to political parties.

Since almost all online purchases are paid for by a credit card, get the banks (who already have our IRD numbers) to levy it on the transaction amount at the time of sale. If it's in error, i.e., a transaction that doesn't attract GST, e.g., a charitable donation, allow people to reclaim it from IRD.

New Zealanders have to stop with the greedy grasping bludging mentality that everybody else must pay tax, just not me. We have schools, hospitals, prisons, roads, and Labour's election bribes to pay for.

Because online spending is bad?

Govt. spending is the problem, up another 1.6% this year, not private spending.

Leave us alone already! How much more do you want you grabbing scoundrels?!!

As soon as I read the headline and I knew this was going to be full of false economy nonsense..A Rockstar whose consumer confidence reputation is based on soaring Credit card debt also reported today is likely to be a fake one hit wonder too.

' "The most urgent issue is not the large end of town, it's the small end of town, it's hard-working mums and dads spending on the internet," English told the committee. "We have to resolve both of those issues." '

'The government raked in a smaller than expected tax take of $23.88 billion in the five months ended Nov. 30, due to *LOWER CORPORATE* and GST, *TAX REVENUE*.'

I have capitalised and asterixed the obvious ISSUE for those who were obviously crap at math at school or didn't get to interpret political 'irony'.

Expectation forecasting based on fictional figures from 'nowhere' was what eventually caught out Enron Merrill Lynch etc too.
And some are calling Cunliffe 'tricky'? Please!!

My household are active online shoppers. We all try to buy goods in NZ first but (example Webber BBQ or Foreign Label clothes) when NZ retailers often charge double foreign prices and (think furniture) have no stock and limited range - we buy offshore. We pay GST, Duty and a $40 processing fee on every import. I just today paid nz$200 duty, fees and taxes on a nz$800 suit - but still under half price of nz retail. Some NZ retail has adapted (UK cars no longer work as NZ prices have re-aligned) but there are lots of slow adapters still trying to maintain stupid margins.

I find it hard to believe that mom and pop online sales outstrip the sales of Amazon, Google, Facebook to name just three multinational online providers operating in NZ.

What is easy to believe is that attacking the small end of town is easier than taking on the big boys. Come on Bill grow a pair.

National want mum n dad locals to setup small businesses to sell goods even if for a while they are exempt or avoid GST. Some will succeed and grow and go on to pay their share, at least the entrepreneur is adding value and hopefully not on any benefits.

Then we have the Govt looking to charge GST on smaller and smaller purchases from outside NZ rather than focusing on corporates such as Amazon, Google and Apple. A possible reason is every purchaser that decides because of the added inconvenience to pay GST buys local supports companies in NZ that do pay tax and then there is the extra GST from the continuing imports. The population needs to get their head around making NZ Inc a better place to live and shop in, because failure to keep businesses and Govt viable within reasonable bounds will result in a NZ Inc that is not a fit place to live.

Perhaps we should be concentrating on the taxpayer waste,( Hones South Africa junket) and the election bribes,(paid parental leave, WFF,etc.
Of course bankruptcy stops the waste in the competitive private world but government has endless access to funds.

So it's official is it, there is in fact no way to get ahead... as soon as the economy improves interest rates go up, possibly costing the average mortgage holder hundreds of extra dollars a fortnight (good luck at getting a pay rise that size to offset that) and as soon as cheaper goods are available in a global economy (a global economy) promoted by the likes of English there's talk of shutting it down... see a pattern emerging here? folks there is no getting ahead, the well paid end of town will not allow their lifestyles to be undermined one iota - give me a recession any day!

I am living in the UK at the moment as we have a daughter and 2 grandchildren there. I do nearly all my shopping online. I buy 85% of my groceries. I use Amazon a large amount - but note I use Amazon.co.uk and pay full 20% VAT on everything - so maybe Governments have to lobby and work with organisations like amazon to have a NZ presence and add GST - Amazon.co.nz - they may have to do some horse trading but there is no way back from online shopping.

Equally in the UK I tend to buy clothes online but tend to use shops that also have a bricks and Mortar presence. The main reason for that is that I am old tight head prop gone to seed and most of the bricks and mortars shops like marks and sparks don't carry my size in the shops but do at their online store. e.g. going to Scotland for a clan gathering I needed two shirts when to Marks and Sparks - nothing in my size, so went online found the size ordered them and they sent them to their Edinburgh store to collect once I had trained up from London

So Online is great - governments have to work within the system - not fight it. There is still a place for bricks and Mortar stores - i.e. it is a social day out but they need to target what their audience does need and not compete so much with the online people and stop whinging and get on and make the requisite changes.

I am a cyclist. I buy components online. I recently purchased a pair of wheels. the wheels were $1200 including delivery & import charges. The same wheels will cost me $2400 from retailers in NZ. NZ is dreaming if it thinks it can maintain a corner shop market charging the consumer corner shop prices locally.

Let's do a quick analysis for a real-world problem for us men here in Auckland.

Say you are looking for a genuine leather black Oxford shoe to wear to a formal function (ie. a dress shoe to go with your suit). This shoe would easily cost you above NZD150 for a standard quality shoe purchased from an Auckland retail store. Try looking for it online, you'll get one really nice shoe for USD65 delivered to your Auckland home.

Where would you buy your shoe?

I'd say at the same place you got the first shoe, otherwise it might not match. Probably better to buy a pair of shoes in the first place.

Can we look forward to the day when the headline says," Political Decisions erode government spending".

Few object tax payments for use in the necessities of life but citizens are furious when taxes are used for more and more social programmes that are pure election bribes.

Aren't the Mums and Dads buying online (from where ever they like NZ or overseas) simply practicing the free trade model that English and Co keep promulgating?

Its great hearing how the bike wheels are cheaper, so are the shoes and so are many other tings. We need Govt to even the playing field so that GST is levied on as much consumer spending as possible to spread the load.

Stop thinking just about your own individual purchase and start thinking, do we want Govt to cut spending and borrowing, if so by how much, and what do you intend to do about the social fabric of the country. Any Government whether Left Right Center or any other flavour requires $s to fund its policies, the more wide reaching, the flatter in nature and the smaller in quantum taxes are the better. Every exception creates discord and unrest. Get on with it Bill, pull whatever levers necessary to even the GST playing field.

Some freight / courier company will come up with a solution to gather the tax and pass it to the IRD, because when the do the parcels will get through on time. Amazon can only ship 1 pair of shoes or two bike wheels to NZ in very short time because they avoid clearing customs inspections, they avoid duty collection, they don't process GST, unlike all other importers of commercial goods who have to.

I do use on line buying and do not begrudge the Govt GST, somehow the mix of price, quality, local presence, time to deliver will be optimized and Brick n Mortar, Click n Deliver, Click on line n wait, will all coexist with NZ based purchaser paying GST on all but the most irrelevant items.

Re Bike wheels: I paid customs duty & a blanket charge for bio security (?) and still the wheels came all the way from Belfast for only $1200 not the $2400 I could have collected them from Christchurch retail outlets for. The problem here in NZ is that a NZ wholesaler shifts less product than a typical European or American retailer. The wholesale prices here are accordingly higher than overseas retail & then retailers are trying to add margin on top. Online shopping has effectively burst the protective bubble.

Simply do not understand the IRD being so full-on re grabbing GST from online purchasing. WHY is the IRD not going after the under the table tradespeople and others who are absolutely RORTING the system and the professionals who claim so much to minimize their tax its not funny. At a party over Xmas a dentist was proud of the fact he claimed private school fees as" lab fees". We middle class employees are being taken for a ride. We are the suckers paying most of the tax !