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Trade Me dragged feet on GST rort, retailers say

This story was originally published in the New Zealand Listener and is republished with permission.

Customs has cracked down on a GST rort, leaving Trade Me to pay back thousands of dollars to customers who had new cameras and smartphones seized at the border. But why was our biggest online marketplace so slow to act?

It was just an everyday transaction for Dr Tarun Ahuja. The Dunedin-based doctor needed a new phone, so in late June he went onto Trade Me and ordered a Samsung from a reputable-sounding supplier - UDS Mart.

The company had a local-looking website, udsmart.co.nz, an Auckland address, and thousands of positive customer reviews. The ads clearly stated UDS would handle all taxes and customs clearance processes. The price was good.

Ahuja paid up and waited for the phone to arrive. 

It didn’t.

Instead Ahuja found himself unwittingly caught up in a New Zealand Customs crackdown on a more-than-two-year-long scam. The rort involved Hong Kong-based companies deliberately undervaluing imported goods so as not to pay GST at the border. 

Trade Me had been told about it months before, but chose not to take UDS Mart and other alleged lawbreakers off its platform.

It banned UDS Mart only after Customs confiscated packages worth as much as $120,000 from 100 or so UDS Mart customers. 

And even then Trade Me - bought by British equity firm Apax Partners for $2.56 billion in May this year - didn’t tell customers what was happening.

Instead, when cameras and smartphones didn’t turn up with their intended recipients, buyers didn’t know why. In late June, people started contacting UDS Mart and Trade Me, but didn’t get any joy. They talked on message boards, comparing stories, speculating.

Customers back Customs

As the dust settled, Customs officers started taking part in comment feeds, explaining they were holding people’s cellphones and camera equipment - and why.

And then a strange thing happened.

People started commending Customs, which could have been seen as the baddie - it was, after all, holding the goods. And they started slating Trade Me. 

As one thwarted buyer wrote: “We are all ever so grateful to NZ Customs for sorting this mess out ... hope it never happens again. Trade Me, please be more vigilant in respect to these sort of traders. I'm certain this dishonest trader could have been noted sooner.”

And another one: “I've been asking Trade Me for a refund for more than a week now. Still haven't heard anything from them except for the auto-generated emails. I'm guessing they are waiting to see if indeed UDS has sent my orders. But even so, a simple email from them would be nice to let me know what's happening rather than just guessing.”

There are plenty more like that.

“It’s probably a wake up call for buyers who thought TM was a safe place to buy a higher value item when that item is coming from overseas,” says a third buyer.

“Trade Me was warned, shown evidence this seller was breaking the law, they were asked to remove them and Trade Me said ‘No, not our problem’,” says another.

But there is some (albeit backhanded) support for the marketplace:

“Some of us are saying that Trade Me only did what many buyers did - namely look at the warning signs and close their eyes. So it's a bit rich for the buyers to now say it's all Trade Me's fault.”

A simple scam

Gerard Emery bought photographic equipment from UDS Mart to test the GST rort theory. Photo: New Zealand Listener

Still, the frustrated-with-Trade Me narrative is one that rings true with Gerard Emery. He’s the chairman of the Photographic Imaging Association, and the spokesman for a group of self-appointed local crusaders who have been battling for more than two years to create a level playing field for their own businesses by getting the GST smugglers shut down.

Nikki Mandow covered the story in the June 22 issue of The Listener.

When Emery and his colleagues did their own investigations, starting in 2017, they discovered a relatively simple scam. UDS Mart and others falsified Customs invoices, so that an expensive camera, for example, was declared as a cheap bit of photographic equipment. As long as the fake Customs invoice was for less than the legal GST cut-off of $400, they weren’t asked to pay the tax.

And because Customs can only open a tiny proportion of the millions of parcels it handles, no one found out that what was in the packages and what was on the invoices were quite different things. 

The scam was uncovered when Emery and others started buying camera equipment themselves. Their investigations proved what they had only suspected before - UDS Mart was dodging GST.

On every package they bought.

Trade Me can’t be judge, jury and executioner.

But when Emery went to Trade Me to ask for UDS to be delisted, Trade Me refused to act.

“It’s not our place to determine if they should or should not pay duty,” says Trade Me head of marketplace, audience and payments Stuart McLean. “We run the marketplace. It’s Custom’s job to collect duty.”

McLean’s former colleague, Rick Davis, previously commented that “Trade Me can’t be judge, jury and executioner” about whether a company is fulfilling its tax obligations.

McLean says after the complaints, Trade Me contacted UDS and asked the Hong Kong company to explain.

“We had numerous conversations and we were given a reassurance it would change. We believe we did everything in our power.”

Emery doesn’t agree. He says Trade Me’s rules for sellers on their platform include telling them to “keep it honest and legal” and that “advertised prices must include GST and [sellers] are responsible for [their] taxes”.

He says any seller not paying New Zealand taxes is breaking the law, and that the camera retailers gave Trade Me proof months before the Customs sting that UDS Mart wasn’t paying GST.

Trade Me took no action.

Trade Me reacts

McLean says his company acts “on what government agencies tell us, not individuals”.

“There were no red flags for us until non-deliveries started to happen, and we acted very quickly after we knew non-deliveries were coming through at an increased rate.

“We took them down that day.”

Trade Me also banned a company called Blitz Trading, which sprang up on Trade Me with suspiciously-similar listings soon after UDS Mart disappeared.

McLean says Trade Me will be refunding anyone who didn’t receive their goods under its buyer protection policy. Tarun Ahuja says he has received his money back.

Still, Ahuja says, it took almost three weeks from when people first started complaining online about not receiving their cameras and phones to when Trade Me blocked UDS Mart’s listings. And all that time more New Zealanders were buying phones and camera equipment.

“The negative feedback goes through to June 27, but Trade Me allowed the store to function on its platform until July 17.

“It’s hard to think there isn’t something going wrong there.” 

Emery says issues with online retailers aren’t anything new; the important thing is for sites like Trade Me to act quickly. He says international price comparison site PriceSpy investigated camera listings from two concerning sites after being sent evidence from New Zealand retailers. One has been removed and the other will be shortly, he says.

“Those guys were great. They came through quickly.”

Onus on marketplace

NZ Customs’ group manager for revenue and assurance, Richard Bargh, says a law change coming on December 1 will force marketplaces like Trade Me to take more responsibility. The so-called 'Amazon tax' will make online platforms responsible for collecting GST on all imported goods worth up to $1000. This means Trade Me will need systems in place to keep track of sellers on its platform.

“They won’t be able to allow suppliers under their website to undervalue goods, or they will be at risk of penalties from IRD,” Bargh says.

“For example, a website like Trade Me will have to do due diligence to know whether someone is a genuine New Zealand supplier or not. If they are a NZ company, Trade Me has no responsibility [for GST]. But if they say they are a New Zealand entity and actually are an offshore supplier, that puts Trade Me into a non-compliant position and there are penalties under the Goods and Services Tax Act.”

The tactic is to make it difficult for [rogue overseas companies] to sell through normal channels.

Bargh says it’s always going to be tough to protect against rogue overseas sellers - it’s easy for companies to change their names and addresses. He says Customs' resources are better spent on data analytics to catch fraudsters rather than on opening and checking the more than 27 million parcels that came through Customs last year.

Having good information means the public and industry groups like Emery’s need to keep talking to Customs. But the agency also relies on websites like Trade Me to be proactive.

“The tactic is to make it difficult for [rogue overseas companies] to sell through normal channels, and websites have an important responsibility in that space. [Sites such as Trade Me] are seen as reliable and need to maintain their good name.”

Meanwhile mobile phone-less Tarun Ahuja says the last six weeks have been a big waste of time.

The irony, he says, is that if you add $150 of GST and $55 of import duty onto the cost of the phone he bought from UDS Mart, you get a phone costing more than $1200. That’s more expensive than the same model available from some New Zealand retailers.

“If I’d known about the GST problems, I certainly wouldn’t have bought from them,” Ahuja says. 

“And in the meantime, I don’t have my cellphone.”

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