Revenue minister tackles the weightless heavyweights

MIKE O'DONNELL
Last updated 05:00 07/12/2013
mike o'donnell MOD
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mike o'donnell MOD

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OPINION: Last weekend my wife and I had a "staycation". Our kids had a few days out of town with their aunt, allowing my beloved and I to hang out at home together. It also meant we made an early start on Christmas shopping and hit some bookstores.

Our eldest girl is a voracious reader and recently migrated from Roald Dahl to Australian writer Tim Winton. Winton's one of those writers producing young adult books that give grown-up adult books a run for their money. He's also one of about 1000 Aussie authors that Amazon has just welcomed to its Kindle family as part of the rollout of its Australia-specific Kindle store.

Concurrent with the launch of its Australian online store, Amazon is also offering localised Kindle ebook readers through the Dick Smith and Big W chains. The new Australian Kindle store includes more than 700,000 books at AU$3.99 or less, and 1.4 million for AU$9.99 or less.

For a book industry already pummelled by web distribution, this is bad news. Unlike generic book readers like the Kobo, the Kindle only works with Amazon-created books. So not only are purchases online, the local consumer spend travels to Amazon central in Seattle (via interesting tax bases like Luxembourg).

While its underlying cost structure is cheaper, Amazon also benefits from not having to on-charge GST or import duty on its sales. It's not just Amazon. No duty or GST is payable on any imported goods worth less than $1000 landed in Australia. Aussie retailers have had enough and have asked state and territory governments to consider collecting more GST on online purchases. The federal treasurer in Canberra is now charged with developing a straw man plan to lower the GST threshold for imported goods.

Here in Godzone, retailers face a similar challenge, though the total value threshold level is just $400. There's a good rationale: the cost of enforcing and administering the collection is greater than the revenue that emerges from importers. However, just like their Australian counterparts, New Zealand politicians are taking another look at it.

Back in August the new Revenue Minister, Todd McClay, announced a joint IRD, Treasury and Customs working party to investigate more-efficient collection of GST on personal imports. The stated objective was to increase the overall tax take for NZ Inc. If this sounds familiar it should. There have been two similar reviews over the past five years, neither of which brought any change.

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What's different about this review is that McClay has instructed officials to look at the bigger issue when it comes to web-related taxation- namely how to ensure that global web giants pay their fair share of the tax take in Godzone. The scale of this problem makes GST on small private imports look like small change.

The likes of Facebook, Apple, Google, Amazon and LinkedIn make hundreds of millions of dollars from New Zealand clients but pay little (and sometimes no) tax.

Facebook, for instance, paid less than $30,000 last year while earning millions in advertising. Apple enjoyed local revenues of $571 million in 2012, yet paid tax of less than $2m.

Meanwhile, Google sold an estimated $140m of New Zealand online advertising through its AdWords and associated businesses in 2012, but paid only about $165,000 in local tax. According to its financial statements on the MBIE website, it claimed a local tax loss of $359,000.

To be clear, none of these companies are doing anything unlawful, they are simply exploiting a tax system that never conceived of ecommerce, a single global market and digital commodities.

Minister McClay has signalled he's had enough of it and has made it clear that these companies must meet their obligation to the New Zealand taxpayer if they wish to continue to conduct business here.

He is in good company. Two months ago in Russia, the G20 Summit promised a crackdown on tax evasion by online multinationals. US President Barack Obama and others sent a message to the likes of Apple, Google and Facebook that they needed to step up and pay more tax.

A new system was proposed where web giants would be taxed where economic activities deriving the profits were performed, rather than just the physical location the company chose as its nominal country of residence.

Local businesses are chiming in. Telecom head honcho Simon Moutter recently chaired a BusinessNZ CEO forum on the issue and challenged "weightless companies" like Google, Amazon and Apple to pay their fair share of the tax take, noting that the current system amounts to nothing more than transfer pricing. The locals are subsidising the globals.

McClay has instructed officials to publish a discussion paper before Christmas, and it should make good reading. Just don't expect the web giants to give up without a fight.

One of my daughter's favourite books is The Magician's Elephant. When it comes to internet-related revenue, the elephant in the room has always been the treatment of the weightless web giants who enjoy the benefits of our market while contributing little to its upkeep.

It's great to see a revenue minister not only speak out about it, but commit to addressing it.

Mike "MOD" O'Donnell is a professional director and an eCommerce manager at Trade Me. His Twitter handle is @modsta and he's very poorly read.

- BusinessDay

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