Online GST review – A case of short sightedness?

MIKE O'DONNELL
Last updated 05:00 20/07/2013

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OPINION: Winter is biting hard in Wellington. We've had three power outages in the last week at our place, and a huge macrocarpa dropped across the road to our valley.

Call it Protestant self-flagellation, but I pride myself on riding to work on a motorcycle in foul weather.

My reasoning is that if getting to work is a life and death challenge, whatever the office throws at me will be comparatively easy.

Over the last month this has seen me buffeted like flotsam on the Ngauranga Gorge, fording roads submerged by swollen streams and getting a "love tap" from a fogged up Mitsubishi Grandis.

If you're short-sighted like me, this means jamming a pair of spectacles into a cramped, wet helmet and repeatedly wiping them with sodden gloves to clear the fog.

Delicate spectacles don't respond well to such behaviour, so I've resorted to buying them from an offshore website which offers three pairs of glasses and frames for $139, delivered to my door within a week. That's less than $50 a pair.

While I buy the specs from a US site, they are sent to me from Beijing. The website is slick and seemingly foolproof. It even takes a photograph of your face and lets you see how they will look.

I've had a couple of duds over the years – crappyframes and cheap hinges – but I've had some real wins as well.

And frankly if just one of the three pairs works out it's still a steal compared to the $400 I used to pay for a pair of prescription specs.

While this is potentially good news for consumers, it's appalling for local optometrists who face high fixed overheads, expensive suppliers and the need to charge GST.

It's exactly this sort of dilemma that has led the freshly appointed Minister of Revenue, Todd McClay, to announce the establishment of a joint IRD and Customs working party to investigate more efficient collection of GST on personal imports.

The stated objective here is to increase the overall tax take for NZ Inc.

While some have chosen to represent it as an online versus offline conflict, NZ Retailers Association boss John Albertson hit the nail on the head when he described it as a domestic versus offshore battle.

Local ecommerce operations need to pay GST as much as High St retailers. It's offshore sellers that are relieved of the requirement, and pass that saving on to their Kiwi buyers.

According to Nielsen, 54 per cent of New Zealanders are now shopping online (up 38 per cent) and 27 per cen tbuy more than 11 or more items a year online.

The same research finds 26 per cent of online shopping spend takes place on international websites, unencumbered by GST.

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To be clear, ecommerce only makes up about 4 per cent of all retail in NZ, but it's growing a heck of a lot quicker than traditional retail. Nobody knows for sure where it will stop.

Underlying this are two questions: how does NZ better collect the GST it is missing out on? And is it time to reduce the deminimis level on items bought from offshore?

Already there have been foolish suggestions on the first one, such as asking credit card companies to collect it.

Apart from the complete disincentive around annoying customers and risking them flying away to offshore payment systems like PayPal and Google Wallet, there's the question of implementation.

Mastercard and Visa are not set up to collect GST as they have no direct relationship with the cardholders.

Equally impractical is the suggestion that deminimis kicks in once an imported good hits $100. At this level the amount of GST payable is just $15.

By the time you implement a system that identifies, captures, records, holds, invoices, receipts and releases qualifying items it is going to cost a truckload more than $15.

The exercise soon becomes cost recovery rather than revenue generation. There's also real motivation for exporters to mark down the value of goods to sneak under the brightline.

If all this sounds familiar it should – two years ago there was another review of deminimis just after Australia lifted their GST free import level to $1000. The review went nowhere. I reckon the same is likely here too.

A more interesting question is around the global web giants who extract large revenue out of New Zealanders but pay little tax.

Facebook, Apple, Google and LinkedIn make hundreds of millions of dollars from NZ: Facebook reportedly paid less than $30,000 tax here in the last year while Google paid around $165,000.

Apple enjoyed New Zealand revenues of $571 million in 2012 but paid tax of less than $250,000.

Something's wrong here. And you don't need an expensive pair to glasses to spot it.

Mike "MOD" O'Donnell is an eCommercemanager and professional director. His Twitter handle is @modstaHe rides a KTM 990 (badly)and loathes people movers.

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