Over the Christmas holidays, the Retail Association came out as usual saying that they were being unfairly disadvantaged having to compete against foreign online retailers who could supply goods to customers in New Zealand effectively free of GST if it is below the diminimus. They felt that GST should be paid on all imported goods.
I am not unsympathetic to their view however, there are a few wider points that need to be considered in the debate. I think that their view is a little bit too simplistic. Let me expand:
- The current diminimus is NZ$400 below which GST is not payable on goods imported to New Zealand. The reason for this is that it is considered to be administratively not worth the effort.
- Imported goods are however not the only exemptions. Technically all goods imported digitally aren’t caught because there is no physical crossing of the border for GST to be imposed on. So it is not just physical goods that have a GST issue, it is non-physical goods and in the digital world it probably is significant when you add up movies, music and any number of other digital downloads such as programmes and books.
- Also, when you travel overseas and buy goods for personal consumption such as clothes, perfumes and the like, and return to New Zealand, these are basically not subject to duty. Yes there is the requirement for you to disclosed goods acquired on the customs immigration form, but in reality it is possible to go overseas and buy a whole new wardrobe of clothes, and simply bring them back to New Zealand in your suitcase.
So if we are going to have a debate about retailers being at a disadvantage, all of these three items need to be looked at, not simplistically looking just at goods physically crossing the border ordered off an overseas website.
The other point to consider is why people do buy goods from overseas website. Typically it is because they can get either a better selection overseas, they cannot be bothered going to the shops in New Zealand or they can simply buy the goods cheaper overseas. The latter point has been quite prevalent lately when you look at the rise of parallel imported new European cars out of the UK and Europe. What it has shown us is that in New Zealand we have paid far too much for far too long compared to what others are paying in other countries. The differences cannot simply be put down to geography and the fact that the goods have to be shipped here, it is down to the fact that in New Zealand too many people have made to big a margins for too long. Maybe this is partly because we are a small country but the reality is that we have paid too much for goods for too long.
Add to the fact that you can sit at home and do your Christmas shopping on line without having to fight 20,000 – 50,000 other people at a shopping mall, it all starts to look very attractive.
So in short there is no quick fix solution to all of this and in reality the simple answer is that what the Retailers Association needs to do is to continue to make retailing more affordable and a better experience. My Christmas present this year was ordered online but at least it came from New Zealand.