The government has moved one step closer to imposing GST on online shopping with a discussion document outlining its preferred approach for introducing the tax.

But unwary consumers could end up paying import taxes of more than 50 per cent on online shopping because of a major design flaw in the proposals.

This must be fixed; otherwise this government's tax reforms are unlikely to win over voters who enjoy the current benefits of online shopping.

So how will the new rules work? The proposals require an overseas supplier to charge GST on each transaction up to a value of $400. Taking a $220 pair of designer jeans (plus GST) as an example, $33 in GST will be charged by the overseas supplier in the same way GST of $33 is charged by a local retailer.

This seems fair but things get complicated when you start filling up your online shopping basket.

Say you buy two pairs of jeans totalling $440. You will have incurred $66 in GST from the overseas supplier. But because the total consignment is above the $400 threshold, the proposals acknowledge that Customs will also impose duty (where applicable) and GST.

Therefore $66 of GST will also be charged by Customs, plus $50.60 in duty (assuming a 10 per cent rate of duty) and additional fees of $49.24 (an Import Entry Transaction fee and a Biosecurity levy) to top it off.

This works out at $231.84 in import taxes, or taxes at the rate of 52.69 per cent on two pairs of jeans costing $440 (excluding GST).

It is proposed that measures are introduced to stop such double taxation but the discussion document is light on the detail. It explains that consumers would need to show Customs evidence that GST had already been paid to the overseas supplier.


But how do consumers do this? Will there be a Customs hotline or online portal so you can stop Customs from overcharging you before the goods arrive?

Or should you try to get a refund from Customs after the goods have been delivered? Getting a refund or drawback from Customs isn't easy at the best of times, so what is going to change?

Inland Revenue and Customs must get their act together or the government will face the wrath of online shoppers at the polling booth.