Taxing oversees purchases can happen only if exorbitant fees are not part of the deal.

NZ Post could charge people $20 to receive overseas parcels if the government slashes the threshold under which items can be bought from foreign websites GST-free.

The new fee of between $15 and $20 per parcel would cover the cost of red tape associated with collecting tax at the border, NZ Post said in a document obtained under the Official Information Act. Consumers could also expect more delays receiving parcels from overseas, it said.

Customs Minister, Nicky Wagner, is due to release a consultation document in April that will canvass lowering the $400 threshold under which most overseas internet shopping purchases can be made free of GST and duty.

Retail lobby group, Retail NZ, has been pushing for the threshold to be slashed or abolished, so as to put domestic retailers and overseas sellers on a level playing field paying GST.

But NZ Post said that if the threshold is slashed from $400 to $20 and tax checks continue to take place at the border, then it will need to invest $20 million in a brand new parcel warehouse that will also cost several million dollars a year to operate.

NZ Post said it already incurred costs of $700,000 a year helping facilitate the payment of GST and duties on parcels entering New Zealand. But if the threshold is slashed, it will not be able to absorb the increased costs, it said.

“Based on our preliminary analysis, NZ Post’s cost recovery charge is likely to be in the range of $15 to $20 per parcel held at the border for GST collection,” it said.

That means consumers might expect to pay $65 in administrative charges on low-value items they have bought from overseas if an existing $49.25 Customs clearance and biosecurity fee also applies to all items under any new threshold, it said.

NZ Post made the warning in a submission on a separate law change that will see foreign sellers forced to levy GST on sales of digital services to New Zealanders from October 2016.

The tax on digital services is commonly referred to as a ‘Netflix tax’ while the lower threshold on physical imports that prompted NZ Post’s warning is often referred to as an ‘Amazon tax’.

The government has already announced that from October 2016 consumers will pay GST on digital products, i.e. the e-book that is downloaded or the Netflix subscription. This is generally considered just. But whether GST will apply to low-value physical goods such as books or shoes remains undecided.

The principle that has won out until now is that the government should not spend more on collecting a tax than it can gather from the tax itself. That is why most items worth less than $400 are currently exempt from GST.

The rule should continue to hold. Unless a way can be found to cut the costs of collection dramatically, then the novel winging in from Book Depository should remain exempt from GST.

Retail NZ, whose members are unhappy with the current skewered playing field, have campaigned for the tax to apply across the board. It said it should be straightforward to make big overseas companies do the tax collecting because if a major retailer like Amazon can collect GST on e-books, then can it not collect GST on a physical book it sends to Takapuna. 

This ability is contingent on the seller’s participation, which is unlikely, as the likes of Apple and Amazon have intimated that they will not be compliant with such a ruling. This defiance could culminate in them no longer selling their wares to Kiwis, which they were slow to do in the first place.

If the retailers will not collect the tax, its prospects look worse. As well as NZ Post’s mooted charge, it seems each parcel could attract another $49 in Customs and biosecurity fees as already mentioned. Government will surely deem such taxation unworkable.

The rapid recent growth in online shopping is not a mere statistic, but testimony to the fact that middle-class consumers are shopping online.

Another possibility is that Customs, Inland Revenue or NZ Post configures a simpler way of handling the parcels. Even a modest cut in costs might allow a matching drop in the tax-free threshold. Yet officials warned in August that no other country, “has yet developed a low-cost alternative to traditional collection systems”.

If they cannot do that, and the big online retailers are not compliant, it appears that the proposed tax becomes redundant.

The conclusion that then comes to the fore is that taxing those purchases is fair, and a modest help to local retailers, but that it can only transpire if exorbitant fees are not part of the deal.