The Prime Minister has warned New Zealanders they could soon be paying GST on online purchases as small as a song download from iTunes.
Mr Key said it was inevitable that the cost of online shopping would go up as GST was charged to more goods and services.
GST is not currently charged on imported digital products such as music and film downloaded from services including iTunes. Physical goods bought online and worth less than $400 also usually escape GST.
Rod Duke, chief executive of the Briscoe Group, owner of the Rebel Sport and Briscoes chain, said the current system was not fair to New Zealand retailers.
"I don't know personally what the retail industry view is but it's probably going to be similar to mine and I'd say the New Zealand general public will also have a similar view," Duke said, "and that is that GST and the collection of taxes in this country provides education, health, police, and public servants with employment, and any scheme which diminishes that and what's more leaves money overseas in the hands of people that don't even live in this country, is probably not fair," he said.
Duke said the fair outcome was for anyone purchasing goods or services to pay tax, adding that it didn't make sense that onshore retailers that were employing people and bringing money into the country, were paying all of the tax when online sellers were paying none of it.
"I think competition is fantastic and it makes things fair, but it's only fair if the playing fields are even," he said. "I think this is probably going to be a fair thing for retailers, it's going to be fair and equitable, and for all people purchasing as well."
Mr Key's warning came as online TV service Netflix announced it would not be charging its Kiwi customers GST.
Launching a broadside against rival Kiwi streaming service Lightbox, Netflix said it would not collect GST in either New Zealand or Australia because it was "not a local entity".
"Netflix has been and will be compliant with all applicable laws and regulations, and pay taxes as required under local and national law," a spokesman said.
However, at present "there are no local or federal rules requiring companies not based in New Zealand to collect GST on digital purchases," they said.
Lightbox chief executive Kym Niblock said they only found out Netflix wasn't paying GST yesterday.
"Lightbox is set up as a New Zealand company, we're playing by New Zealand rules, we pay our fair share of tax and we expect that of our competitors.
"We expect people who are in the region to be paying exactly what we are, there's no difference between our businesses, we're both bidding for content, we're buying content from international providers and we're servicing New Zealand customers.
"Our position is, they should be paying their fair share of tax."
Mr Key today said the continuing growth of online shopping was considerably affecting the Government's tax-take.
"It is not so much a matter of clawing back revenue, but base erosion - the ability to actually lose a huge amount of revenue because people are increasingly going online is something that eventually not only we need to deal with, but every country."
While the GST on some online goods and services would be very small, such as on a $1.29 iTunes song download, it could still be worth pursuing because of the scale of such purchases, Mr Key said.
In a recent speech, Revenue Minister Todd McClay said he had asked officials to look at what other countries are doing to collect more GST.
New Zealand is also involved in efforts by the Organisation for Economic Co-operation and Development (OECD) to develop international rules.
Mr Key said that if the OECD was moving too slowly on the issue New Zealand could go it alone with measures.
However, working with other countries made sense.
Retailers lobby for move
One benefit would be to ensure online retailers were compelled to sign-up to a scheme that would require them to collect and pass on GST.
If they did not, they would not have access to shoppers in all OECD countries.
Such a move has long been lobbied for by retailers. They see the current situation as unfair competition - a view Mr Key agreed with.
"What they see, for example, is people coming in and trying a pair of running shoes on in the store.
"Their staff go through all of that, the person goes online, and sometimes even comes back and tells them that they bought it online for less."
'We just want people to be on a level playing field'
Asked about the popularity of such a move, given it would increase the cost of many online purchases, Mr Key said he did not believe most Kiwis were trying to avoid GST when shopping online.
"Most people are realistic enough to say, a lot of jobs are supported by retail in New Zealand, and we just want people to be on a level playing field, and actually people should pay their taxes whether they buy something online or walking through the front door of a store."
What happens currently
Currently Customs stop goods they identify as being worth more than $400 from entering New Zealand, and contact the purchaser to arrange GST payment.
The $400 threshold is derived from the amount Customs says it costs to inspect a package and its documentation at the border, arguing that it makes no fiscal sense to spend more than $1 to collect $1 of GST or duty.
Mr Key said a recent random audit had shown people were declaring goods to be worth less than what they were.
Thresholds differed between countries - Australia's was $1000, while Canada's was $25.
In 2014, Marketview, a Wellington-based analytics firm, estimated that in the past year New Zealanders spent about $1.1 billion on international online purchases - twice as much as four years earlier.
The average value of each purchase was also found to be dropping.
Mr Key said he was not a big online shopper, but his children were.
"They seem to enjoy the fact that not only do they not pay GST, but also they use my credit card to pay for it."
- additional reporting Holly Ryan and Brendan Manning