Key says Government looking at unilateral consumption tax on online purchases from offshore sites; also looking at making online retailers register for GST

John Key has thrown his weight behind moves to catch more online purchases and even digital downloads in the GST net, and Labour says it would support changes to close the online revenue loophole.

New Zealand is part of an OECD working group looking at the issue of consumption taxes on online sales, but revenue minister Todd McLay told the IFA conference last week that some countries had begin to implement their own online tax policies and he had asked officials for a report soon on the suitability of those policies for New Zealand.

On his way into National’s caucus meeting on Tuesday, Key said the OCED online taxation working party was not expected to report back “at least until the end of the year.”

Although the government was looking into the option of implementing its own online consumption tax policy without waiting for the OCED report, Key said this seemed the “harder” option.

“We are looking at both potential options because some countries do have their own individual approach, but certainly it looks a lot easier if you can work as part of an international approach,” he said.

The Retailers Association has estimated in this report that the shift in shopping to overseas websites could be costing up to NZ$300 million a year in lost GST receipts. BNZ’s Online Retail Sales report for January found online sales to New Zealanders from offshore websites rose 14% in the last year, while sales by New Zealand websites rose 2% and sales from traditional ‘bricks and mortar stores rose 3.9%. The BNZ/Marketview index estimates purchases of electronics and clothing and footwear from overseas sites was NZ$445 million in the year to January, up 17% from a year ago.

Register for GST?

But Key agreed that some online retailers could drop deliveries to New Zealand if they were required to register for GST.

“That’s the risk and so that’s why being part of a broader group with the OECD is important because if all the OECD countries around the world say you have to register, then that makes it much more difficult for iTunes or whoever to say, ‘we just won’t supply that product in New Zealand’.”

Despite the risk of resistance from online retailers, Key appeared to support the OECD’s favoured option of requiring companies selling to New Zealand consumers to register with the IRD for GST.

“You would pay it at the point of purchase,” he said. “Effectively, as I understand it, the current proposal from the OECD is that if you went and bought a product from GAP, and the product was $100, GAP would be registered for GST like a normal business would be in New Zealand and so you would buy it for $100 and what would come up would be the price of $115 including the GST.”

“You pay GAP and GAP pays the New Zealand government.”

“Ultimately, you could get to a point, for instance, where, if you think about iTunes, if you download a song and it’s a $1.29 or whatever it is, then there is no reason why the GST shouldn’t apply to that. Now, in reality, the GST would be two cents – but actually two cents over a massive number of transactions still adds up.”

Reducing the NZ$400 threshold?

The government was also looking at ways to change the current “de minimis” amount while at the same time administering the rule more efficiently to reduce hassles for consumers, Key said.

The current “de minimis” setting means online purchases under NZ$400 escape GST, but Key said there was evidence of widespread under-reporting by consumers.

“There was a random audit done some time ago by customs of whether people were actually declaring at the right level, and a huge number of parcels were under-declared,” he said.

“The problem with just reducing the de minimis rule, so saying ‘above, let’s say, NZ$25, you have to pay GST’ – the issue with that is: how do you collect that? At the moment if you buy something that’s NZ$700, then one of the issues is those goods often get stopped at the border, you then have to ring customs and you have to give them your credit card details and you have to pay before they deliver it to your house.”

“It’s not an easy situation. Lots of countries take a different view. Australia, for instance, has a much higher level of de minimis at NZ$1000, but I think Canada is down at $25.”

‘Online GST inevitable’

Key said that, despite the administrative challenges, it was “inevitable” that the online shopping loophole would be tightened, especially as big online retailers would try to “rort” the system.

“The reality is that, over time, if you roll the clock forward five, ten, 15 years, a huge amount of retail is going to move online. If you look internationally what you are seeing is quite a lot of shops, for instance, being established where they only have one sample product. You go in and try that on and have a look at it, but actually your purchasing is online. And that’s the risk if you don’t balance these things up and have them as fair. You could have some very big retailers who say, ‘well, I’ll show you the product, I’ll let you try it on but I won’t actually sell it to you direct. Go to my online shop, which is based offshore and I avoid the GST’. So you can have all sorts of rorts that aren’t fair long-term.”

Labour supports online GST

Labour leader Andrew Little agreed that the “gap in our GST collection” needed to be plugged.

“We have expressed our support for that approach,” Little said to reporters before Labour’s caucus meeting.

“Most countries now have a consumption tax. If purchasing from one country out of another means that you avoid it, then clearly it is going to have an impact on government revenue but it’s going to put local retailers and suppliers at a disadvantage.”

“To level the playing field I think it is appropriate that we find a way to levy GST off those retail transactions that are done through our credit card system but from overseas suppliers.”