Taxing personal imports raises tricky questions
In February 1993, a Hungarian postal inspector in Budapest's industrial 10th district intercepted a parcel containing a mysterious plastic device that appeared to be a component of a larger machine.
The object was highly engineered, but crudely packaged, and accompanied by a handwritten instructions in a foreign language.
But what was it and, more to the point, what was it worth?
He tracked the owner - a young foreign national who had arrived in the country four months earlier - to a nearby flat and called him in for questioning.
The foreigner was me and the intercepted device a replacement toner cartridge for my inkjet printer that a relative had sent from England.
After explaining it was only worth about 4000 forints ($80), I was on my way, both our mornings wasted.
Collecting and duty on items shipped internationally has always been a headache. That is why New Zealand Customs doesn't try unless it nets $60 on a shipment, which, in most cases, means personal imports worth less than $400, including shipping, come in tax free.
But is the ability we all now have to shop at competitively priced online stores around the world a good thing? Or was the Government right to set up a working party to consider levying GST on all personal imports?
The answer to both questions has to be "yes".
Imposing GST on all overseas shopping wouldn't stop people buying online from overseas. Nor should anyone want it to.
But creating a "level-playing field" for local retailers and overseas e-tailers would encourage people to shop where it most made sense. It might perhaps make it possible to lower the overall rate of GST.
What is certain is that if GST receipts fall relentlessly because of the growth of international e-commerce, some other tax would need to increase or public services would need to be cut to compensate.
There is also an environmental aspect: a level-playing field would discourage items being air-freighted around the world if it was more economically efficient for them to be shipped in bulk and sold locally.
If current trends continue, we might end up in a bizarre situation where Australians bought all their small items from online stores in New Zealand, and New Zealanders imported all such items from Australia, just so we could all avoid GST.
Customs Minister Maurice Williamson said levying GST on all imports would be "hard, very hard" and then, once it became clear how unpopular such a policy would be, he described it as "almost impossible". But he probably got it right the first time.
The joint Inland Revenue and Customs working party will look at whether credit card companies could collect GST and duty on international purchases, adding it to customers' credit card bills.
That would have two important implications beyond just lowering the tax-free threshold.
Firstly, it would let Customs collect GST on services and digital items supplied to consumers from overseas, such as music and games downloads and online streaming music services - not just physical items shipped through the mail.
Secondly, it would prevent overseas e-tailers helping customers evade GST, which they can easily achieve by understating the value of items in customs' declarations or by marking up purchases as "free samples".
New Zealand credit-card issuers could be compelled, in theory, to collect the tax. But there are complications. There are a variety of overseas-based payment intermediaries such as PayPal that consumers could probably use to avoid GST on their purchases.
Another less obvious spanner in the works is the more recent phenomenon of prepaid credit cards, such as New Zealand Post's Prezzie card.
It would seem impossible to guarantee GST could be levied on purchases made using prepaid cards unless the surcharge could be processed and added to consumers' purchases in real time, at the moment of payment, which would seem a huge technical challenge.
Thirdly, a proportion of people will have overseas-issued credit cards and bank accounts. Though, thanks to the tightening of money-laundering legislation, such accounts are getting harder to open and maintain.
Although consumers could find ways around paying GST on overseas purchases, it is questionable how many would bother, given that it is still easiest to buy things online using a regular credit card.
If it came to it, Customs could perhaps continue intercepting a proportion of incoming packages and lightly penalise people who could not show they were intending to pay any appropriate tax.
It would be possible to ensure GST was not charged on items that people bought in person when they were overseas.
As some people have already suggested, tax could be added only to "card not present" transactions - those transactions made online or over the phone.
Credit card companies can distinguish between these and purchases where a card is inserted or swiped at an eftpos terminal in a store. There might need to be some mechanism for claiming tax refunds in other situations.
Although hard, none of this is impossible.
The bigger question is whether it makes sense for the New Zealand Government to try to be a pioneer or wait until some other tax-strapped country or multinational organisation takes the plunge.
I would rather see officials talking about a long-term, low-impact technological solution to the GST issue, rather than succumbing to the "Hungarian solution" and simply lower the allowable value of tax-free imports to $100 or $200 and open up more parcels as a short-term sop to retailers, which I suspect may be another possible outcome.
The problem with waiting for international action is that big United States web businesses benefit most from the current state of affairs.
The US Government appears to be trying to protect the likes of Google and Apple from the Organisation for Economic Co-operation and Development's efforts to clamp down on multinational avoidance.
It could be expected to do the same to shield the likes of Amazon from the impact of foreign consumption taxes.
Either way, Williamson appears to have given officials strong encouragement to bury their heads in the sand until after the next election.