Crackdown on web purchase GST overdue

Some 20 years after the internet became a regular feature of our lives the rules for tax treatment of overseas online purchases are finally catching up. Local retailers breathed a collective sigh of relief this week as the Government announced plans to collect GST on items worth less than $400 — albeit with a delayed start date of October 2019.

While some shoppers may grumble, the move was met with limited political opposition — perhaps because the National Government already had similar plans under way last year.

Local business and retail associations have lobbied hard for enforcement of GST on small items, claiming that the tax advantage given to overseas retailers has created an uneven playing field.

As revenue minister Stuart Nash points out, there are more than 26,000 small businesses employing more than 62,000 people in the retail sector.

There is an inherent unfairness to allowing their overseas competitors — often multinational giants — what amounts to a tax break.

Ultimately the biggest hurdle to collecting the tax has been logistical rather than ideological. Larger items have warranted the efforts of Customs to catch them at the border. For the masses of books and clothes being parallel imported by web savvy Kiwis, Inland Revenue needed to be sure that the expense of enforcement would pay back a significant return in increased Crown revenue. It seems they now have a workable plan. That involves requiring large online players to register as New Zealand GST players.

Quite how we would enforce that is not clear. Certainly it is something our tax collectors would have struggled to do in isolation. But the move makes more sense now that we are following in the footsteps of Australia and other larger nations.

The winds of change are blowing on multinational tax. The giants like Amazon are more likely to play ball and collect our GST when faced with the multilateral threat of sanctions from around the world. It’s likely they’ve known this is coming and it’s unlikely they will see it as a major threat to their rapidly growing businesses.

Even if the GST collection process proves effective, local retailers would be unwise to relax.

The reality is that for many consumers now the allure of online shopping is not just about price. It is about ease and convenience.

Successful online retailers have an unnerving knack for remembering customer preferences and offering up well-timed promotions. Like Facebook and Google, they make point of getting to know us through our online histories. The future of retailing — like the future of so many business sectors — now rests firmly in the technology space.

Meanwhile, the next big move in online tax regulation must surely be a crackdown on multinational companies — such as search engines and social media sites — that use an online service model, and other tactics, to avoid paying local tax in jurisdictions where they generate revenue. This is tricky but would begin to level the playing field for local businesses — not least media companies.