Steve Waite: GST for online sales? My response

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Partner at BDO, Steve Waite, reacts to the unexpected response from his original post which called for improved taxation of online retailers
Anyone can see that retailing has to evolve in line with technology but our tax systems  are helping speed Main Street's demise before it has time to evolve, says Steve Waite partner at accounting firm BDO.
Anyone can see that retailing has to evolve in line with technology but our tax systems are helping speed Main Street's demise before it has time to evolve, says Steve Waite partner at accounting firm BDO.

My column proposing how GST might easily be imposed on goods purchased online and the fairness in doing so certainly struck a nerve or two - 380 nerves at the time of writing this response!

I suppose it was always going to be a 'big ask' for the online community to agree that GST should apply to the goods they purchase online from overseas.

In addition to the online comments, I received numerous emails and even had a call this morning from a New Zealand online retailer now based in the UK.

I value diversity but, judging by the comments lodged, there seem to be a few messages from my article that have been misunderstood. Rather than reply to each one I'll try to restate the main points here.

Steve Waite: Saving shops from tax free online shopping

Firstly, there is no way that I wish to roll back the clock. I fully embrace the cost savings and increased variety available online. I am no Luddite as one reader suggested. The thrust of my article was that new technologies require new responses. Modern information technology, including the banking system must be a part of that response.

Secondly, I am not arguing as another reader suggested that our retailers should be subsidised. In imposing GST at the border I am merely seeking to take away an unfair advantage enjoyed by overseas online retailers. I suggested a rate of 20 per cent (rather than 15 per cent) as those items crossing our borders direct to consumers under my proposals will still escape various duties and charges imposed on goods imported by NZ retailers.

Taxation is supposed to be equitable, transparent and neutral between delivery channels. I suggest the current system meets none of these objectives and the blame can be laid on "old world thinking" being applied to the "brave new world". A long awaited IRD Task Force is due to consider this issue next year.

Thirdly, as one more sympathetic reader did point out taxation is simply how "we", via the Government, pay for the public goods that "we", as citizens of this wonderful country, enjoy. Things like health care, education, roading and welfare. It is currently estimated that the volume of these goods being imported from on-line retailers is more than $1 billion dollars per year. The GST not being collected is somewhere around $150 to $200 million dollars every year. It seems clear to everyone that these numbers are only going to increase. That is $200 million that has to be raised from some other taxpayers in some other way in order to pay for our lifestyles. That doesn't seem fair.

Fourthly, the online community seems to have this impression that retailers are making huge profits. While I personally act for only a few retailers as part of BDO, the largest accounting network in New Zealand focused on the mid-market, BDO is acutely aware of the financial challenges facing the industry.

Benchmarking from the University of Waikato shows that the average net margins achieved by even the best operators are typically around 14 per cent with median businesses achieving only 8 per cent of sales. The retailers listed on the NZX net margins average only 6.5 per cent. In simple terms, to try to compete on price with an equivalent business that is able to avoid charging 15per cent GST to their customers would decimate all those retailers' businesses.

As recently as yesterday, Hallenstein Glassons announced a profit warning after profits for the 6 months to February were 23 per cent lower than the previous year - attributed in part to the impact of on-line sales from overseas retailers.

Fifthly, GST is a tax on consumption. I can certainly remember the evil effects that tax rates on income of 60% and more had on this country. How willing were we to work that extra hour or two when almost two-thirds was going in tax and only one third going in our back pocket. Not a good thing! A broad based, "simple" GST has helped fix that.

Finally I often find people's comments on various online articles ... well ... challenging.

Life seems hard and their problems so overwhelming that they come across as somehow dis-empowered. Can I leave you with a story for Christmas?

A father took his young daughter for a walk along the beach. They came upon thousands of starfish lying stranded on the hot sand. The little girl immediately picked up a starfish, ran down to the sea and threw the starfish into the waves before returning for another.

Her Dad said "Sweetheart there are thousands of starfish dying on the beach, you won't make any difference".

The little girl said "Daddy, I made a difference to that starfish".

Merry Christmas everybody and a prosperous 2014!

Debate on this article is now closed.

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