Suppliers and importers who falsify the value of their goods and avoid GST at the border are gaining an unfair advantage over local retailers.
This issue is "prolific", and organisations affected by the usually overseas-based opportunists selling to New Zealanders on local marketplaces, say it is an issue Customs should be proactively cracking down on.
GST has been levied at the border since 1986, when it was introduced.
Greg Harford, chief executive of Retail NZ, said there was a "sizeable number" of importers and suppliers who were not paying 15 per cent GST by creating a false invoice for a product. Declaring the value of the import as lower than cost price.
The act was "outright fraud", Harford said, and Customs needed to make sure these people were not "defrauding the system".
"It's absolutely unfair that people can smuggle goods into the country and not pay tax.
"Businesses operating in New Zealand that import goods legitimately pay a lot of tax, employ New Zealanders and help keep our economy going. Nobody likes paying tax, but it is how the government funds the services, such as health and education, that we collectively expect government to provide," Harford said.
Around 27 million parcels passed through New Zealand's border through the mail last year, and there were 12 million import consignments.
About 10 million of those were small, low-value goods.
Every parcel coming into the country through the postal stream is screened either by x-ray or detector dogs. But not every parcel coming in has its value declaration vetted.
Richard Bargh, group manager for revenue and assurance at Customs, said physical checks of all parcels would take up too much resource, and checks for accurate value declarations usually came about through industry tip offs. As was the case where Customs recently discovered electronic equipment shipped to New Zealand by a Hong Kong supplier which had incorrect value declaration, in an attempt to avoid GST.
"If we're going to stop a consignment and check anything, we've got a good reason to and an understanding of what we're looking for, otherwise the volumes would overwhelm us," Bargh told the Herald.
But that's what retail industry analysts are concerned about. That too many illicit importers and suppliers are getting away with not paying GST at the border as Customs is stretched, unable to vet enough orders.
Customs says just two per cent of all parcels that come into this country are found to be non-compliant, though most due to mis-describing goods or not declaring items rather than incorrect value declaration.
Chris Wilkinson, general manager of First Retail Group, said New Zealand's systems to ensure GST avoidance was not occurring were "overwhelmed".
"As the volume of goods have increased, infrastructure and resources haven't," said Wilkinson. "The government has been remiss in not foreseeing and provisioning for this when other countries could clearly seeing the revenue leakage and commercial impact.
"New Zealand is an outlier ... other countries have moved to address these anomalies. The Australians have reduced the value of imports - as this was one of the issues identified, while the UK has a very low threshold, so almost nothing could get through with taxable value. They leverage the Post Office network in helping collect taxes."
Bargh refutes claims that GST avoidance on imports was a widespread issue here.
He said it was not an increasing issue. "It goes through periods where particular businesses endeavour to get around the system, but we don't see it as a widespread issue.
"We've run about four surge operations in this area over the last four to five years, they are quite targeted. The last one we ran last year, we only found about $20,000 in undervaluation - that was across around 170 consignments."
Harford said there was no difference between "someone who falsifies an invoice and does not pay tax at the border and someone who might be smuggling contraband goods".
While the responsibility for enforcing tax law sits with Customs and Inland Revenue, online marketplaces should also take responsibility and thoroughly vet their sellers, he said.
"Anyone selling online via a reputable marketplace should be a legitimate business that's paying their employees fairly, paying tax, that isn't bringing unsafe product into the market."
Wilkinson said: "TradeMe should be giving greater scrutiny to these offshore sellers that could be clearly identified through the categories they trade in, scale of listings and unverified commitments of managing tax on behalf of buyers.
"The company says it takes fraud seriously, this type of activity is on a grand scale - yet the organisation conveniently looks the other way. That is not acceptable given its promoted position as a responsible corporate citizen."
Stuart McLean, Trade Me head of marketplace, said the marketplace - which touts itself as New Zealand's number one auction site - relied on Customs to enforce GST payment at the border of its sellers.
"We will act if they raise concerns with us," McLean said in a statement in response to whether the platform should be giving greater scrutiny to offshore sellers.
McLean said the marketplace had already banned one seller, UDS, from its site after its parcels were held by Customs for not paying GST. Up until that point the seller had a high feedback rating on the platform, it said.
As a result, Trade Me would make changes to its reporting and analysis of sellers, he said.
"We believe we acted appropriately in this instance but will make some further changes to our reporting and analysis to see if we can prevent further issues like this again in the future."
McLean could not share what changes Trade Me was working on or the "tweaks" it had made following the case.
Retail industry commentators say incoming GST legislation which comes into effect December 1 requiring foreign websites to charge GST at the checkout for orders coming into New Zealand should help to ensure compliance with tax obligations.
But they warn it will not solve the issue alone.
"Inland Revenue and Customs will still need to be looking hard at goods as they cross the border to make sure the right taxes are being paid and that people aren't rorting the system," Harford said.
"Thresholds may still need to be considered, as happened in the UK, where this came right down in order to limit any escape from obligations. [New Zealand] should be taking learnings from these other jurisdictions in order to remove loopholes," Wilkinson said.
Bargh said incoming legislation would help with the issue as it would put the onus on suppliers to register and return for GST.
"We think putting the onus on the e-marketplaces to assist will make a big difference."