Tax-free internet shopping to end next October
GST will go on internet shopping purchases from overseas from October next year, the Government has confirmed.
Announcing details of the new regime, Revenue Minister Stuart Nash said large foreign companies would be required to levy GST on all goods they shipped to New Zealanders valued at $1000 or less.
Nash said the move was conservatively expected to raise $112 million annually within three years, on the assumption that by then about three-quarters of goods people bought online would be from suppliers that complied.
The new rules will change the situation under which most goods valued at less than $400 including shipping can be bought from overseas websites tax-free. Lower tax-free thresholds currently apply to goods that attract duty.
Customs will remain responsible for collecting GST and duty on goods worth more than $1000, from consumers.
Only foreign companies that sell less than $60,000 worth of goods to New Zealanders over a 12-month period will be exempted from having to comply with the new regime, and GST won't be payable on items bought from them.
Nash said that was in keeping with the fact that local firms with an annual turnover of less than $60,000 also don't have to charge GST.
Australia became the first country to require foreign firms to collect GST on physical items they shipped direct to consumers from overseas in July.
Nash believed that compliance by foreign firms there was less than 50 per cent, but he said it was early days and all the major marketplaces and companies had "signed up".
The New Zealand Government's decision to follow suit with Australia follows pressure from Kiwi retailers which have argued they have had to compete on an uneven playing field.
Nash said he did not believe the tax change would have a major impact on New Zealanders shopping online "but it is about understanding the reality of the 21st century marketplace."
There were about 26,000 small retail businesses in New Zealand that employed more than 62,000 people, he said.
"Many are in competition with foreign firms which sell exactly the same product into our market without collecting GST.
"With the steady growth in online shopping from offshore suppliers, a significant amount of tax revenue is being lost. Mostly though, it's a matter of fairness so the sooner we get this in place the better," he said.
There is a small silver-lining for consumers, with duty and biosecurity fees on imports worth between about $225 and $1000 being abolished.
That will make some imports valued at up to $1000 that still attract duty, such as clothes and shoes, up to about $150 cheaper. Nash said it would also remove hassles for people who might previously have had to go to the trouble of getting items worth less than $1000 released by Customs.
The new regime will also apply to online marketplaces, and Nash said Trade Me would have to comply by levying GST on items sold to New Zealanders by overseas traders through its platform.
"The concern if you didn't register Trade Me is that overseas suppliers would end up just putting their stuff up on Trade Me. The tax system has to be about fairness and integrity."
Nash said it would always be difficult to get to "100 per cent compliance" by overseas firms but Inland Revenue did have "ways and mean to enforce this".
"We will start off in a helpful mode, so if companies aren't complying will inform them."
If that "softly-softly consultation process" didn't work, it would take more steps, mainly taking advantage of the mechanisms provided for through the country's double tax agreements, he said.
Retail NZ spokesman Greg Harford said local retailers would still have to pay duty on many items that shoppers could avoid by buying direct from overseas.
"The Government's proposal does not deal with this issue. However, it is a significant step forward which will be welcomed by the New Zealand retail and wholesale sector," he said.
Deloitte tax expert Allan Bullot said the big change from an earlier proposal was that foreign sellers would be required to collect GST on goods valued between $400 and $1000 – not just those costing less than $400.
That means existing duty and border security fees on purchases between $400 and $1000 would be removed and also that the onus for collecting GST on items between $400 and $1000 will switch from Customs to overseas suppliers.
EY tax expert Paul Smith said it was a "savvy change" that could help the Government avoid a consumer backlash, but believed there was some risk it might backfire.
"The Government is banking on overseas suppliers to comply to raise revenue under these new rules.
"If they don't comply, it could be a disaster from a revenue collection perspective," he said.
HOW PRICES WILL CHANGE
$50 T-shirt bought online from overseas
Now: Costs $50
After: Will cost $57.50 with GST added by supplier
$300 jacket bought from overseas
Now: Costs $432.17, with duty, GST and border security fee paid by consumer
After: Will cost $345, with GST paid by supplier, but duty and border security fee abolished
$600 phone bought from overseas
Now: $742.67 with GST, duty and border control fee paid by consumer
After: Will cost $690, with GST paid by supplier, but duty and border security fee abolished
WHAT THE "AMAZON TAX' SHOULD RAISE