Steve Waite: Saving shops from tax free online shopping

Anyone can see that retailing has to evolve in line with technology but our tax systems are helping speed Main Street's demise before it has time to evolve, says Steve Waite partner at accounting firm BDO.

New Zealand's tax systems is helping speed the demise of High St retailers before they've had time to evolve, says Steve Waite partner at accounting firm BDO.

It's no secret that shoppers are increasingly migrating online to take advantage of the huge cost savings and extra variety of doing so - even sneaking into local bricks and mortar shops to try on or test out gear before going back home to buy online, for much less.

And why wouldn't you? The savings are just too big to ignore. But it's neither fair nor sustainable.

While anyone can see that retailing has to evolve in line with technology, as a Chartered Accountant, tax professional and business adviser I think our tax systems aren't helping and are putting extra pressure into the situation and helping speed Main Street's demise before it has time to evolve.

The issue is how we raise indirect taxes - GST in New Zealand.

The Inland Revenue and Customs have set up a working group to establish whether 15 percent GST should be charged on items bought online which cost less than $400. Apparently, a discussion document on the matter is expected in the New Year.

Other countries, including Australia and the United Kingdom, are also currently grappling with how to introduce such a system to deal with this fundamental tax anomaly - offshore retailers are getting away with competing unfairly with local retailers by not paying GST.

The online sellers of course are resisting all attempts to have them collect and had over indirect taxes. Witness the latest Supreme Court decisions re Amazon, Overstock and eBay - of COURSE they are - it's a HUGE (unfair) competitive advantage to them.

Do you think they will just roll over quietly?

We know we pay GST of 15 percent on everything we pay when we shop locally. We also know that we are often not charged GST when we buy on line from overseas and even when we buy locally, we pay 15 percent on the smaller price. So this gives an unfair pricing advantage to online sellers.

Not fair!

So, why don't we charge GST at the border just like we do to any other importers?

The reason we are told by the likes of Customs Minister Maurice Williamson is that it would be virtually impossible to charge GST on items being bought online due to the cost and complexity of gathering the revenue. Rubbish - that's Stone Age thinking!

Certainly we have seen the attempts by other countries to deal with the issue. We recently sent a present of possum down tramping gear to our son in England. Happily paying GST here only to find Her Majesty's Customs opened the parcel charged £33 VAT and £50 duty and administration fees for the privilege of opening, assessing and collecting it. Outrageous - it wasn't a commercial shipment, it was a gift! Unsustainable. Unfair!

So, what to do?

Why doesn't NZ (and other like-minded countries) impose a simple indirect GST at the border using modern technology? None of these online sellers take credit risk; they've had our money before shipping the goods. NZ should simply require them to attach a 'bar code' to the outside of the package that details what's inside, it's value and authorises the IRD to debit the sellers bank account for the tax (I'd suggest levied at 20%).

Easy-peasy - and no need for arbitrary $400 limits; everything can be taxed, just as it is on Main Street.

Some initial setup costs at the border, postal services, freight services - but nothing substantial compared to the operational costs of collecting our other taxes.

Sure there will be tax leakage with unscrupulous sellers devising ways to avoid looking like on line sellers - but in these days of open information is that really going to be hard to detect for any significant volumes?

There will need to be policing of the tax with random sampling of the accuracy of the bar codes. Again simple and the penalties for non-compliance will be severe. Compulsory opening of future goods from that supplier, charging of ten times the GST evaded to the seller and a $50 handling charge to the customer. Do you really think that won't stop systemic evasion in its tracks?

So, let's use technology to help address a problem caused by the "disruptive technology" of on line shopping and give our retailers on Main Street a bit more time to adapt to the brave new world confronting them.

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