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Home / Business / Companies / Retail

Liam Dann: Tax-free shopping has a cost

Liam Dann
By Liam Dann
Business Editor at Large·NZ Herald·
7 Dec, 2014 04:00 PM4 mins to read

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Brands like Just Jeans could start selling their Chinese made goods to Australian consumers direct from China to avoid local GST. Picture / Bloomberg News

Brands like Just Jeans could start selling their Chinese made goods to Australian consumers direct from China to avoid local GST. Picture / Bloomberg News

Liam Dann
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
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Snaffling GST-exempt bargains online hurting retailers but fightback under way in Oz.

Australian retail billionaire Solomon Lew has declared war on his Government's failure to charge GST for overseas goods bought online.

Fed up with having his sales in Australia taxed at a higher rate than offshore competitors he's told the annual meeting for his company Premier Investments that he will instruct executives to find ways to level the playing field.

That most likely means that his Australian brands, like Just Jeans, Smiggle and Peter Alexander, could start selling their Chinese made goods to Australian consumers direct from China to avoid local GST.

Lew has support from high profile Aussie retailers like Harvey Norman and Myer.

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It seems typically Australian for retailers there to be taking a more confrontational approach to this issue which is also a major bugbear for local players in the New Zealand market.

No government likes a tax revolt and one senses an almighty battle coming with the Australian Taxation Office.

In New Zealand the Government has been lobbied on this issue by the Retailers Association.

Currently New Zealand consumers can avoid GST on goods worth less than $400 on overseas websites.

The Retailers Association wants GST applied to all online purchases to "level the playing field".

It has pointed out that as well as the unfair disadvantage it creates for local retailers it is also costing the Government up to $300 million in annual GST revenue.

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But early this year the issue was effectively sidelined when it was wrapped into a wider review of tax law which won't be complete until next year.

The draft paper for that review suggests any decision is likely to follow OECD recommendations on the issue.

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So there is no immediate relief in sight for struggling retailers. And many are struggling.

In New Zealand we've seen the Postie Plus chain go into administration this year - before being sold to an international buyer. Now much loved children's clothing brand Pumpkin Patch is facing an uncertain future.

When another children's clothing chain, JK Kids, announced it was closing last year, the company blamed competition from overseas websites, as well as the global economic downturn.

South Africa hasn't waited for the OECD and introduced new legislation to apply sales tax to digital purchases in April.

It will be interesting to see whether the more aggressive approach of Australian retailers gets results.

Let's face it, such a move is always going to be politically unpalatable. The average voter doesn't respond well to anything that puts prices up.

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Then there are the logistical difficulties of policing new rules and ensuring the extra retail tax is paid.

There have been suggestions that an enforcement and tax collection role for the postal service might actually be its saviour.

But for now consumers in New Zealand and around the world are cashing in on cheap tax-free goods via online shopping sites.

Everyone loves a bargain but if we step back and take a look at the social cost of letting local retailing falter then it is hard to avoid the conclusion that we need to make changes.

The real winners are often giant multinational corporates which are already doing a good job of avoiding local taxes on profits they earn.

That issue - known as Base Erosion and Profit Shifting (BEPS) - is also subject to an OECD review and is another one of the big tax dilemmas of our time.

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Tax is a huge shaper of social behaviour and imbalances in a tax system can have far-reaching consequences.

Those few dollars we save on a T-shirt or pair of shoes bought direct from the US do have a cost to the economy, in terms of local jobs and profits as well as government revenue.

This is not about protectionism or shielding local retailers from more efficient international rivals - it is about fairness. The days when we could use legislation to advantage our own businesses ahead of foreigners are rightly long gone.

But a system that clearly puts local business at a disadvantage makes no sense.

Debate on this article is now closed.

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