Online shopping sets new tax challenges

GST is a consumption tax; it is based on the sale of goods and services, with the tax ultimately being borne by the end consumer. Online shopping accounts for approximately 10 per cent of retail shopping undertaken by New Zealand customers. Much is bought from overseas suppliers, but GST is not imposed on much of foreign internet purchases.

New Zealand retailers say they are disadvantaged and that the Government is missing out on a lot of GST because Customs now only imposes GST and duty on imported goods worth more than $400.

We have the second highest threshhold for imposing GST or VAT on imported goods. Australia has a threshhold of A$1000, butCanada’s is C$25, the UK’s £25 and South Africa’s nil.

The cost of imposing GST on such imports is not insignificant as the compliance cost of assessing and collecting it falls directly on Customs and would increase if the threshold was reduced.

Software, computer games, music, and videos can be accessed over the internet. Given that such purchases do not result in delivery through the post, Customs cannot impose GST – hence Netflix saying it would not charge GST to New Zealand customers.

The likely approach is to request overseas online suppliers of goods and services to impose GST on New Zealand customers and forward the amount to Inland Revenue. South Africa has successfully encouraged many foreign internet suppliers to undertake such a role.

It is possible that some form of international agreement will be reached on the imposition of GST or VAT and income tax on e-commerce. This could be facilitated by the Organisation for Economic Co-operation and Development (OECD)

If GST is imposed on foreign e-commerce primarily on the basis that the goods and services are consumed here, it follows that we should refund GST to tourists on goods purchased here but taken offshore. The current approach is that such purchases are consumed here unless the goods are posted overseas by the retailer or couriered to an airport for the tourist to take when they depart.

Our GST and income tax legislation does not contain specific provisions that contemplate e-commerce trading. I believe that there will be legislative change, but that change may be the result of decisions made offshore.

Murray McClennan is the director of Tax Central Ltd, a specialist tax consulting firm. He can be contacted by emailing murray@taxcentral.co.nz