Revenue Minister Todd McClay is taking a proposal to cabinet that aims to reduce the threshold at which GST and import duty is levied on imported goods. Retail NZ public affairs manager, Greg Harford, says the news is good for Kiwis as a reduced threshold provides them with an even playing field in competition against foreign retail websites. “A current loophole in the law means that most goods bought from foreign websites can be imported into New Zealand free of GST and duty if they are wor
th less than $400, but this acts as a reverse tariff which penalises Kiwi businesses and makes it harder for NZ retailers to compete with multinationals,” explain Harford.
He says Retail NZ estimates the GST loophole is costing the government between $200 to $500 million in lost revenue this year as Kiwis increasingly embrace online shopping.
“In June, there was a 29 percent increase in spending on foreign websites, so it’s a real problem for the government as well as retailers, and we are pleased that the issue is being given serious attention,” says Harford.
Harford says NZ and Australia have the highest tax exemption thresholds in the world and are well out of line with best international practices.
Canada has a GST threshold of C$20, Britain has a £15 tax and the United States has no tax threshold at all and subjects all parcels to tax.
“The Australian government recently announced that it would be seeking states’ agreement to reduce the threshold from A$1,000 to A$20. If the Australians can do this, there is no reason why the NZ government can’t follow suit,” he says.
“Collecting GST in the modern internet age should be relatively straightforward and cost-effective.”
Retail NZ and Booksellers NZ have been running the #eFairnessNZ campaign, calling for the government to require foreign websites to register for GST and collect the tax at the time purchases are made. GST and duty should be collected at the border on all items worth more than $25 if the foreign website do not register for GST.
PwC partner and GST specialist, Eugen Trombitas, says it looks likely NZ will follow in Australia’s footsteps in taxing digital and physical goods.
This includes Netflix, which will advantageous to NZ-based streaming services.
Trombitas says, “This low threshold is international best practice and consistent with many other countries. Every option should be considered as reform will impact all New Zealanders and have a lasting impact,” he says.
“Having announced a GST on digital services earlier in the year, physical goods will be on par with digital services’ imports and remove the tax-free advantage for overseas retailers selling into Australia.
“Australia has realised that by deciding to tax all digital services it can’t do a half job with imported goods and lower the threshold from $1,000 to $500 as was previously being considered. The thinking is that it has to have no threshold or a very small one as all imported goods and services should be taxed equally. Technology advancements should allow the ability to collect GST duty more efficiently.
“An announcement is expected soon in NZ.
“The Australian proposals give more impetus for our policy makers and NZ Customs to review services.”
Trombitas suggests that for goods, the government could consider changing the threshold from minimum taxes (many imported goods under $400 are not taxed in NZ) to minimum price of goods which would be easier to administer. It would then have a number of options to weigh up, including: lowering the threshold from say $400 to $100 or potentially even lower; and perhaps looking at offshore seller registration similar to digital services.
Nerine Zoio: nerine@insideretail.co.nz