Up to half of sites may avoid ‘Amazon tax’
Online retailers will soon have to collect GST for sales to New Zealanders, but a sizeable chunk of them are expected to opt out, Thomas Coughlan reports
The Government announced today that online retailers like Amazon.com will be required to collect GST on sales to New Zealand of less than $400, placing them on an even playing field with New Zealand retailers. The change will come into force in October next year.
But Revenue Minister Stuart Nash said that he only expects 75 percent of retailers to comply with the new rules.
“Our conservative estimate is about 75 percent of retailers will comply. That’s what we’ve seen with online goods and services,” said Nash.
Nash told Newsroom this figure would equate to $57 million in revenue in the first year and increase to $87 million by 2022.
This figure seems unambitious for a tax which is so broad based that it boasts near total compliance among brick and mortar retailers. Prime Minister David Lange, whose Government introduced GST in 1986, once boasted the tax was so broad even drug dealers paid it.
Nash said that he would not be allocating extra resource to IRD to help it enforce compliance and collect the tax.
Asked whether this meant he was simply requiring overseas retailers to be honest, Nash replied, “in a way we are”.
“We can give them all the information they require to help them sign up, but it’s about the credibility of their organisations as well,” Nash said.
But the IRD is not totally toothless. It can request information from foreign tax jurisdictions and it can also ask foreign tax agencies to collect tax owed to the IRD.
Deloitte tax partner Allan Bullot said the lack of extra funding for IRD would not have a great impact.
“It’s a project and IRD isn’t too bad at dealing with projects,” Bullot said.
“There will certainly be some people that are reallocated to do an education road trip, but once it’s up and running there won’t be too many resources that need to be allocated to just keep the project ticking over,” he said.
Playing by the rules
The change comes after the Government introduced GST to online services like Netflix and as Australia begins to roll out its own attempt to collect GST from online offshore retailers. This new GST rule will build on both changes.
Overseas online retailers who sell more than $60,000 in goods and services to New Zealand will be required to register with IRD and collect GST of 15 percent on their sales. The retailer will then pay that money to IRD.
Consumers are not totally off the hook. The discussion document also said that on occasions ‘the worst offenders” would be required to register and pay the GST that should have been paid by the retailer. It is unclear who these abusers might be, but abuses of the current rules include a $20,000 aircraft part being declared for less than $400 to avoid paying GST and other charges.
Other options were considered including requiring delivery companies or consumers to pay, but the Tax Working Group ultimately recommended that requiring the retailer to collect and pay the tax was the best option.
'Just like the Australians'
Bullot said that this followed discussions in Australia, which had also opted to require retailers to pay the tax.
“In the international marketplace, New Zealand is often thought of as another state of Australia. We try to have our rules closely aligned,” he said.
But Paul Ford from Trade Me said that other collection options should be looked at to ensure broad compliance.
“We'd encourage the Government not to simply default to the Australian approach where the tax is collected by the operator,” Ford said.
“We understand the ATO said it expects the maximum level of compliance to be around 50 percent in Australia so there may be a better way and we'd be keen to see these explored,” he said.
50 percent compliance may be optimistic. Many online retailers told Australia’s Senate Economics Committee that charging vendors rather than freight firms risked an epidemic of non-compliance.
Joo Man Park, managing director and vice-president of eBay for Australia and New Zealand, said he was told by Australia's Treasury that they expected compliance of just 25 to 30 percent.
But Nash is optimistic. He said that revenue raised from extending GST to online services had raised $113 million in its first year, far exceeding the $40 million forecast by Treasury.
Feeling the pinch and passing it on
Online shopping accounted for 10.8 percent of retail sales excluding food and liquor in 2017, according to Stats NZ, but the market is growing. Domestic online retailers like Trade Me and Mighty Ape are still more popular than their offshore counterparts and the gap is widening.
In February, they accounted for around $175 million in sales compared to around $145 million for their offshore competitors. Their sales grew 17 percent last year, compared with 15 percent for offshore retailers.
Sales at bricks and mortar retailers only grew 4 percent last year.
Stephen Bridle from Marketview, which reports on online retail, said that he expects that growth to continue in spite of the changes.
“There are three factors: price, choice - we have access to a broader range of products than on the high street - and convenience,” he said.
Bridle said he expected online retailers to pass on the price increase to consumers, but online retailers would continue to be cheaper than their bricks and mortar competitors, whilst still offering advantages of convenience and choice.
“Often the price difference is more than just 15 percent,” he said.
Nash’s announcement today inadvertently illustrated the other advantages online retailers have in price. Announcing the change at Unity Books in Wellington, Nash brandished a copy of 50 Years of Rolling Stone Covers that he had bought that day for $60, saying it was unfair online retailers could effectively offer the book at a 15 percent discount.
The same book is currently available on The Book Depository, owned by Amazon, for $43.52 with free shipping, a 26 percent discount.
Whether online retailers choose to pass on the full cost of the change to consumers remains a point of contention. Prime Minister Jacinda Ardern said on Tuesday that she would be watching the implementation of changes in Australia with interest.
“What I’ll be interested to see is whether or not for some of those large organisations, like for instance ASOS, whether or not they are or will increase the cost just for New Zealand consumers because the likes of Australia have been doing this already,” she said.
Andrew Cushen of InternetNZ agreed that online retailers would probably pass on the cost to consumers.
This could mean pain for some New Zealanders who have felt the pinch of slow wage increases and have come to depend on the price competitiveness of online retailers which have driven down the price of consumer goods (the ‘Amazon effect’).
Last month, the chair of the US Federal Reserve Jerome Powell lent credence to the theory, saying the Amazon effect might be responsible for low inflation experienced in the US and around the world.
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