Online GST could backfire on economy

Wellington (20 March 2015): Applying GST on low-value imports could easily backfire and end up doing more harm than good for the economy, The New Zealand Initiative warned today.

Head of Research, economist Dr Eric Crampton said applying GST at the border only makes sense if there is a way of doing it that neither deters foreign retailers from shipping to New Zealand, nor imposes substantial hassles on Kiwis importing goods from abroad, nor proves too expensive to collect.

“A low threshold imposing a lot of hassle on consumers could easily do more to deter internet shopping than to encourage a level playing field,” noted Dr Crampton.

Worse, options for internet sales tax coordination with the OECD, suggested as a way of encouraging foreign retailers to collect tax for all participating countries, could harm New Zealand firms exporting directly to American consumers.

“America has thousands of different local sales taxes. A few years ago, the state of Wisconsin issued a 1,437 word memo on which ice-cream sandwiches are taxable. Exporting is already daunting enough for a lot of small New Zealand firms without having to navigate thousands of complicated tax regimes,” Dr Crampton continued.

“I am really not convinced that we do the country a service by entering into any deal requiring New Zealand firms to collect sales taxes on behalf of thousands of American taxing jurisdictions, each with different and complicated rules, in exchange for American firms remitting GST to the New Zealand government.”

“Even if an OECD-wide regime were restricted to national-level sales taxes, New Zealand firms exporting directly to Canadian consumers, for example, would have to deal with Canada’s overly complicated GST regime.” Dr Crampton concluded. “Levelling the playing field, when New Zealand’s GST regime is world-leading, risks subjecting Kiwi firms to rather worse conditions.”

ENDS

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