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Polity: Crampton on online GST

Written By: - Date published: 2:49 pm, January 27th, 2015 - 33 comments
Categories: Economy, gst, tax - Tags: , ,

polity_square_for_lynnReposted from Polity.

Here is Eric Crampton opposing calls to create a level retail playing field by charging GST on all purchases, whether the seller is based in New Zealand or based overseas:

Does this create an uneven playing field for New Zealand retailers? Yes, as compared to a world in which tax could be collected costlessly. But consider the real world!

Ordering higher valued products from abroad means they will be held up at Customs until GST is paid. The quickest payment option is the online credit card service which attracts a 2.5 percent convenience charge. Internet bank transfers are cheaper, but require the customer to take the separate step of logging into online banking, making the payment, then waiting for Customs to notice that payment has been made. Or, you can drive across town to your nearest Customs office. All of these methods also attract a separate Import Entry Transaction Fee of $29.29 (including GST) and a biosecurity levy of $17.63, regardless of the value of the import. That hundred dollar import that was undertaxed by $15 suddenly would attract not only $15 in GST, but also $47.29 in transaction charges.

Oh noes, the slippery slope! If you charge them $15, they’ll end up having to pay $62, because path dependence. That’s nonsense.

Eric’s argument only holds if you believe all other aspects of Customs operation are set completely in stone, and are immutable to a change in the GST rules. One very simple thing you can do to remedy the particular worry Eric has is to exempt the newly-GSTable transactions from the Entry Transaction Fee and the Biosecurity Levy. Customs doesn’t currently collect those levies on those goods anyway, to there’s no financial loss there.

On the broader point of compliance costs, many of the big global shipper-retailers (Amazon is the prime example) already collect tax at point of sale across masses of different jurisdictions. It would not be difficult to add New Zealand to that list. Doing that for just a few large retailers solves around 80% of the problem, which is better than the 0% of the problem Eric’s Chicken Little act solves. For the remaining ~20%, creating a new streamlined process, either through the banks or through Customs, would be the way to go.

Eric is right on one thing, though. Once you’ve done this stuff, the extra government revenue will be about zero. But the point here isn’t to raise money, the point is to create a level playing field, where New Zealand-based retailers get a fair fight. Governments do all manner or revenue collecting that doesn’t raise much revenue (imagine the cost-benefit on chasing delinquent fines all over the place…), and they do it when there is something else important at stake. There is here.

33 comments on “Polity: Crampton on online GST”

  1. felix 1

    Far more efficient to do away with gst altogether.

    • Tracey 1.1

      kitten!!!!!! where u been yo.

    • Murray Rawshark 1.2

      I concur. I remember demonstrating against GST when it was first mooted. My sign said “Douglas is a dog.” We didn’t get much support at that stage because most people found it hard to believe that Labour would act on behalf of the very rich and the speculators. Now, 30 years later, people are so disgusted with Labour that they are largely irrelevant. Unless they revise what the dog did, they don’t deserve to be in government.

    • adam 1.3

      Never a better suggestion uttered their felix.

  2. Colonial Rawshark 2

    Yet another pivotal tax issue that the left wing electorate is concerned about.

  3. Morrissey 3

    Eric Crampton is one of the absurdly labelled “Monday thinkers” that occasionally appear on Bryan Crump’s otherwise excellent Radio NZ National show. He is perhaps the most inarticulate and confused of all of the extreme right contributors—-which is remarkable, given that the other extreme right wingers that appear include the hopeless, comically doctrinaire Luke Malpass and the risible, discredited former ACT “leader” Rodney “The Perk Taker” Hide.

  4. lprent 4

    After Eric Crampton erects his strawman in the first part of the article, he then hits the key argument in the second part of it.

    I worry that too many local retailers focus on the GST issue when the underlying issue is rather more troublesome. New Zealand simply is not large enough to be able to achieve the economies of scale that foreign warehouses enjoy.

    This is in fact the case but to a certain degree it is also a strawman argument. There are some pretty basic countervailing factors that he appears to have missed…

    Firstly a 15% tax on to the item AND their freight (yes freight would be included) is going to, in most cases, put the cost above local items for most commodity goods. Quite simply the cost of freight goes up exponentially the smaller the numbers of items you bring in.

    So this argument really doesn’t apply on bulk items. It applies to speciality items where few if any items are held in country. Curiously this is everything that I or Lyn buy offshore.

    Secondly, there is a “cost” for consumers. The wait… Sometimes, the very long wait for physical objects. I know if I can buy the specialist stuff that I use in NZ, then the premium I’m willing to pay is substantial.

    Thirdly, laying your hands on it. Doing returns on direct consumer imports on many items is fraught. It is a hell of a lot safer to buy locally for anything that you can’t get a good spec sheet on. Lyn buying oddity clothes from offshore is a interesting thing to observe. About 2/3rds work ok.

    Fourthly, credit. It always amazes me the number of people who use in-store credit to purchase things. I can’t really envisage that happening easily or trustingly online.

    Fifthly, law. Try taking an offshore retailer to small claims for a dud stereo or a leather jacket teh the stitching is rotten in.

    None of these are new issues. They just about describe the issues that importers have had bringing goods into NZ forever. When you cut out the middleman you do lose their intermediate holding and clipping costs. However you also start to take all of those risks on yourself. The inevitable results are going to happen. What looks like a great economic deal will be. Right up until your personal importer gets a dud, and tries to return it.

  5. Linda 5

    iu look at the northamerica retail trends the shopping malls are starting disappear so even if gst is charged a lot of the retail space s redundant anyway the technology has largely removed the middle man I think stores like bunnings will survive but general goods electronics cloths will head to the cloude

    • lprent 5.1

      I suspect that old style malls are disappearing. I know that I avoid them at every possible opportunity.

      This xmas we did our complete xmas shop in about 3 hours using local stores and a couple of online retailers for some quite specific gifts – like a DVD set of the 1995 pride and prejudice that simply weren’t available in local stores.

      The only one I brought from offshore was a Asus USB powered hi-res very portable LCD screen for Lyn’s laptop as a dual screen that I couldn’t buy in NZ. There was no stock here or in aussie.

      We didn’t go near a mall. As a determined anti-shopper living with a determined shopper, it was a whole lot less of a pain than usual.

      I was a retailer, I’d be more worried about losing out to local online retailers like Mighty Ape. If I buy from some of those types of stores then the item is in my door in the following day or even in the afternoon. If I buy from amazon.com or amazon.com.uk, at best it usually arrives next week.

      I’ll pay a bit more to have it available in a nearby store or a local online company.

  6. ghostwhowalksnz 6

    So I can track my overseas parcel as it goes from different locations around the world and then the different locations in NZ ( warehouse, then courier) but I cant collect GST automatically…….. wait there is a clue……. barcodes.

    The US or UK or anywhere retailer knows youre location so can calculate GST at time of ordering.
    They add an additional matrix barcode in addition to the tracking barcode.

    This matrix barcode has information for customs such as type of goods, the total value, amount of GST and anything else they need.

    Thus when it goes through customs, they are scanning the parcels, they pick the item id, this then calls up a transaction with Amazon, or ASOS or whovever and so on to collect the GST into their NZ customs account. This could be a batch process say every couple of hours.

    The product is released to the delivery warehouse, who continue to track as normal.

    If its not delivered and resent overseas, then the above is reversed.

    This is a fairly uncomplicated track , scan, type of system which any capable computer company could implement.

    The main senders of the items would be registered and one offs could be handled as by manual process.

    • nadis 6.1

      US retailers have already declared they won’t do this for other countries. They do however do it for the states that charge sales tax on interstate transactions.

  7. McFlock 7

    sooo – his argument is that levelling the playing field would be unfair to overseas producers, because it would make online-imported items more expensive in dollar terms and effort?

    Isn’t that the point?

  8. Richard@Down South 8

    So many items purchased overseas already come sent as ‘gift/sample’

  9. nadis 9

    All goods imported into NZ are liable for GST. It is just that Customs (or whoever) chooses not to collect below a certain threshold.

    This discussion is not about policy, it is actually about the implementation of that policy.

  10. I’ll just copy here the comment I left for Salmond over on his blog. And thanks for the kind words above; the standard of discussion here always cheers me up.


    If you check the full op-ed piece, you’ll note that my main argument is about the hassle cost that GST collection would impose on NZ consumers. I argue that the GST difference is trivial relative to the magnitude of savings from shopping online, and that retailers looking to blame the GST are missing the bigger problem of economies of scale available abroad.

    You’ll also find that I support applying GST on imports IF there’s a mechanism that would impose no hassle costs on consumers and that wouldn’t just eat up all the revenue in transactions costs for the government.

    I’m not sure why you characterise the argument around extra customs fees as slippery slope. The Customs fact-sheet dated November 2014 says that they collect those two charges whenever they collect GST. I hardly thought it unreasonable to expect that they would continue with that practice. It’s always possible that the government could tell them “And, don’t charge any fees for collecting $15 on $100 purchase”, but that just shifts the collection cost to the broader public, and it wouldn’t be trivial. If the existing fees are cost-recovery per transaction, think a bit about how much the Customs budget will have to hike to cover $37 in real costs per processed transaction if they have to process all of them and are barred from recovering the cost. We can ban customs from charging for it, but we can’t wave a wand to make the collection costless. We just change who pays.

    But, again, that isn’t the crux of it. Rather, it’s the differential hassle cost imposed on online shoppers purchasing from abroad when they have to jump through additional GST hurdles.

    Hey, if you come up with some actual real-world mechanism that works, that’s great. I expect that if any such mechanism existed, IRD would already have done it. But you could be an entrepreneur in this space.

    The other main point is that NZ retailers may be deluding themselves by laying blame on GST when the price difference between NZ retail and shipped-to-my-door-from-abroad is often 33%-50%. Rather, it’s economies of scale from abroad that are the main source of the cost differences.

    Anyway, you might check back on the full piece I’d written and linked. I say pretty explicitly that I’d support GST on imports were there a way of doing it without effectively just putting up a big hassle-cost non-tariff barrier.

    I’m curious about your source on Amazon’s willingness to collect foreign taxes. If it’s just that Amazon.co.uk collects VAT on goods shipped from the UK to other parts of the EU, I’m really not sure that’s the same thing as Amazon.com agreeing to collect NZ’s GST.

    Finally, I’ll note that where the NZ market is often pretty small and cannot sustain that much competition, it’s fringe competition from online imports that help to constrain domestic prices. Make low-value imports a hassle to parallel import, and I’ll bet you’ll start seeing hikes in the local prices of those products.

  11. mpledger 11

    I don’t see why it can’t be charged at the bank. An overseas transaction gets 15% added to it as GST.

    • nadis 11.1

      It’s not that simple. A lot of offshore transactions aren’t GST liable. Plus with the advent ofonline banking, alternatives like paypal etc the system would only work if it were self certifying. Hence everyone would avoid it.

      • mpledger 11.1.1

        I don’t know which transactions aren’t GST liable but one I suspect one is if you buy overseas while overseas. But what’s the difference in buying some goods/services from overseas from NZ and buying some goods/services from overseas while overseas. Very little. Than they should both be GST liable or neither.

        Simple solution GST all paypal payments.

  12. JonL 12

    I’m in the reverse situation – I by some products (model cars, made in China) FROM New Zealand, because not paying NZ GST on exports, and not having to pay GST on imports under a certain value, makes the items very competitive compared to buying them from elsewhere in the world, and the postage is bearable.
    Would be even better if the exchange rate widened again……

  13. Brutus Iscariot 13

    Why brother trying to “protect” bricks and mortar retail, when it is clearly a dying industry?

    All that C02 emitted as 1000s of people drive one by one to the air-conditioned mall, load up with junk, then drive home. Turn them all into medium-high density housing hubs with public transport links. That’ll sort the housing market too.

    • English Breakfast 13.1

      Bricks and mortar retail is certainly not dying. Changing, yes. Dying, no. The mall is the 21st century ‘town square’, a meeting place for people of all ages to shop, eat, drink, and catch up with friends. Some sections of retail won’t continue with bricks and mortar, but most (such as the apparel industry) will run with omni channel options…a combination of on-line, and bricks and mortar flag-ships stores.

      • Molly 13.1.1

        ” The mall is the 21st century ‘town square’, a meeting place for people of all ages to shop, eat, drink, and catch up with friends.”

        I think of it more as a facsimile of a true community space. What you are describing as a town square, would require no entry or engagement fee, and personal relationships and shared responsibilities between all those involved.

        This existed in the traditional market squares to quite a degree, but does not exist in the shopping mall community you describe. That is a poor imitation.

        • McFlock 13.1.1.1

          Capitalism fucked Gruen’s vision for a modern town square quite thoroughly.

        • English Breakfast 13.1.1.2

          I disagree. There is no entry or engagement fee for a mall, just the added bonus of being able to procure services for a fair price. And there are indeed both personal relationships and shared responsibilities in the mall. There are rules of etiquette and behaviour; people meet either by design or spontaneously; malls often host (free) entertainment; the list goes on.

          People enter the town square or the shopping mall as individuals or groups and interact (or not) on pretty much exactly the same basis.

          • Molly 13.1.1.2.1

            I’ll clarify a bit about some of the fundamental differences.

            In traditional market squares, sellers had ongoing relationships with buyers. If they delivered sub-standard goods or overcharged, then their sales would quickly diminish. Buyers often had personal knowledge of how goods were produced and the integrity and honesty of the seller. Sellers, unless they wanted to travel longer and longer distances to sell their goods, would keep buyers on side. Buyers, wanting the most choice, would also be respectful of sellers.

            This layer of information and mutual social benefit is missing from modern day malls. We purchase goods many degrees removed from the producer, and the chainstore sellers have no direct link to the purchaser, or indeed detailed knowledge of their suppliers.

            Also, despite free entry, the mall is not a public space.

            It is a privately owned space and is run and policed as such. You are not able to take your own picnic lunch to that space to meet with friends. You cannot spontaneously create your own entertainment in a mall for the enjoyment and benefit of others. Your discourse and your behaviours are regulated and enforced in line with the policy of the mall owners, not the agreed mores of the community around you.

            To you it may look like a town square. To me it is a hologram, using people’s need to meet together as another marketing tool.

            • Colonial Rawshark 13.1.1.2.1.1

              Always best to have a public space, not a private commercial space.

              BTW did you know malls were first designed and envisioned by an Italian socialist post WWII who had immigrated to the USA. He had designed them with schools, apartments, gardens, kindergartens etc all incorporated.

              Of course it got all stripped out in favour of money making space.

            • English Breakfast 13.1.1.2.1.2

              Molly, your comments about buyers and sellers in the town square apply also to the mall. When we shop at malls we choose brands we know by reputation, sometimes shops with people we have come to know over long periods of time. Where the goods are produced is largely irrelevant to the delivery of the service in supplying them. Further, services provided in malls are indeed very personal and direct. For example my local mall has shops that can set up my lap-top, my cell phone, change my call plan etc etc, and I engage with real people, face to face. Just like in the town square. Even on the issue of ownership I believe you are misguided. The mall is a privately owned space, but without a strong incentive for public participation, the mall will fail. The owners of the mall have a huge incentive to maximise the public utility of the mall. The town square is actually owned by the Govt or local council, and has a raft of associated rules and restrictions around it’s use, not always met with universal approval by the wider community. The mall and the town square are not the same, but they are very, very similar in many ways, to the point where the mall is now the ‘new’ town square. And that was my point.

      • Colonial Rawshark 13.1.2

        Bricks and mortar retail is certainly not dying. Changing, yes. Dying, no. The mall is the 21st century ‘town square’,

        Sorry to break it to you mate, but millions of square feet of US mall retail space has shuttered in the last 10 years, and millions more square feet are forecasted to close in the next few years.

        http://www.wsj.com/articles/SB124294047987244803

        • English Breakfast 13.1.2.1

          Perhaps, and yes the ‘virtual public space’ (and of course the GFC) have impacted. But the mall is far from dying, indeed they are evolving to meet the changing demands of the consumer. 21st century malls are no longer closed spaces – they are open air, some with grassed parks and play areas; they are no longer solely retail – malls are becoming a mix of retail/commercial spaces, providing regular foot traffic for cafe’s and restaurants within the mall. It’s an exciting field, with much debate between urban planners and community leaders about what mall spaces will look like in the years ahead.

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