The customs GST debate – a change is needed
Raising or removing the GST threshold on imported goods has been a hotly debated issue over the past few years.
While consumers prefer the status quo, as it reduces their ultimate cost of purchase, retailers have been banging their drum about the competitive advantage it creates for foreign suppliers and are seeking a removal of the exemption threshold in its entirety.
The Government will always consider additional revenue streams and have been seriously contemplating the GST threshold level – although it looks unlikely that there will be any adjustments in the upcoming Budget as the promised review has now been pushed beyond the election.
Although I agree the threshold should be removed, I disagree with the rhetoric the retailers would have us believe. The issue has very little to do with removing the ‘competitive advantage’ overseas retailers have over their New Zealand counterparts.
The reality is that the price difference on most online purchases far exceeds 15%, even after adding in the cost of postage or freight, and there are a myriad of other more significant issues the traditional retail model is facing, beyond the GST issue.
The debate is about capturing taxes on goods consumed in New Zealand. GST was designed to be broad and apply to most goods and services. It is now an integral contributor to our Governments finance’s (18% of Government revenue) which helps pay for our social services.
If you live in New Zealand, you need to be contributing towards that privilege. It shouldn’t matter whether we buy goods from a New Zealand vendor or an overseas one, the tax cost should apply equally to both.
I completely understand the rationale for the existing threshold, after all, what good is collecting additional tax if it exceeds the cost of collection? But let’s remember that the UK and Canada currently have very low thresholds (£15 and $20CAD respectively) and a larger population than ours. It can be done.
Smart online providers will adapt their approach to ensure the shopping experience is streamlined for their customers. We only need to look at one of the largest e-tailors, Amazon, to see how easy it would be for them to cater to the removal of the current threshold. Their online system is already geared up to calculate the likely import fees and taxes on your purchase – and this is built into your purchase price on checkout (see: import fees).
Removing the threshold may frustrate the buying experience as it could delay the delivery of the goods and will obviously increase the price – but that’s not reason enough to dismiss the idea.
A recent survey by the New Zealand Retailers Association estimates that the current online spending of New Zealanders is over $5 billion, and about $1.6 billion of that is electronic downloads (the majority being from overseas providers). It’s estimated that approximately one third of the $3.4 billion goods purchased online are from overseas suppliers. And this trend is only going to increase.
Capturing GST from electronic downloads may prove more difficult. However, we are living in a world where boundaries no longer apply and there’s an app for everything imaginable. I am sure there is some clever cookie who can invent a suitable way of capturing the GST on these purchases too. Perhaps some of the $1.5billion Inland Revenue are investing on their new IT system could be spent on this.
Can we, and should we, turn our backs on additional annual revenue of $300 million for NZ Inc? Surely this is reason enough for the Government to take some action on this issue.
GST is an extremely efficient tax, and our current system is pretty solid – but the world has changed and we need to realign our tax system to ensure that efficiency continues. As David Lange once famously quipped: “Even drug dealers pay GST.” In my opinion, online consumers should too.