One of the country's main bicycle retailers says stores will go out of business unless the Government finds a way to level the playing field and charge GST on overseas online purchases.
The Inland Revenue Department and Customs have set up a working group to look at whether the consumer tax can be introduced on foreign purchases worth less than $400 and a discussion paper is expected this year.
Many items bought on overseas websites can be imported free of tax if they are valued at less than $400, including freight and insurance costs.
Glenn Smith, managing director of Bikes International, which runs Bike Barn stores, said the tax exemption was having a huge impact on retailers - particularly those in the cycle trade - and some stores would be forced to close if no changes were made.
Wiggle.co.uk, an online cycle and sportsgear store, was one of the top five websites generating DHL deliveries to New Zealand in 2011.
"When you start talking to cycle dealers ... the biggest threat any of them see in their business is the overseas imports," Smith said. "Our margins are so skinny anyway so to be 15 per cent behind before you even start makes it impossible [to compete]."
Retailers Association spokesman Russell Sinclair said the industry group was pleased the Government was having a serious look at the exemption, which was costing the country around $300 million a year in lost tax revenue and making life difficult for local businesses.
Introducing tax on all transactions wouldn't stop Kiwi shoppers from buying products from foreign websites - as the prices on offer could be very attractive - but it would be fairer on retailers in this country, Sinclair said.
Customs Minister Maurice Williamson, however, said it would be almost impossible to find an effective system for collecting the tax.
At the moment, if tax or duties apply to an imported item the buyer receives a letter from NZ Post instructing them to contact Customs and arrange payment.
"It would be great if we had some easy mechanism to charge it against credit card transactions but that would mean you'd have to identify whether the person was actually in New Zealand at the time," Williamson said on Radio New Zealand.
Alfred Naffah, New Zealand manager of MasterCard, said credit card companies were not set up to collect tax on cardholder transactions and even if it were possible, online shoppers would quickly migrate to other payment platforms such as Pay Pal. "It's a dangerous path to suggest we start playing the role of tax collectors," Naffah said.
Sinclair said that in Italy, couriers armed with mobile payment terminals collected tax on overseas purchases when they delivered the items.
Consumer NZ chief executive Sue Chetwin said that while she felt some sympathy for retailers, goods purchased overseas could be 50 per cent cheaper than the same items here. "It's not just the 15 per cent - it's a hell of a lot more than that."
- Additional reporting, BusinessDesk