Shopping overseas online is set to get more expensive as Prime Minister John Key warns he plans to tighten rules on GST, which, according to retailers, is costing the Government more than $200 million a year.
The move was welcomed by New Zealand companies yesterday.
GST is not currently charged on imported digital products such as downloaded music and film, or physical goods worth less than $400 bought online.
Key yesterday said the growth of online shopping was affecting the Government's tax take and warned that New Zealanders could expect to start paying tax on online purchases as small as song downloads.
"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," he said.
New Zealand Retailers Association chief executive Mark Johnston said the Government was missing out on more than $200 million annually in tax revenue from online shopping.
"We estimate that given around 10 per cent of all retail sales are online, and about 40 per cent of that is from offshore websites, it's a big number - we estimate it could be $200 million-plus in terms of additional tax revenues for the Government and that's only going to grow over time," Johnston said.
The Retailers Association had been pushing the Government to apply GST to online shopping for years to provide a more level playing field for retailers in New Zealand that had struggled to compete with lower pricing online.
Johnston said apparel retailers, including clothing and footwear, as well as books, music and movies and sports gear, were the categories that had been most affected by overseas online sales.
"The current GST loophole acts a bit like a reverse tariff, so it means it not only costs consumers more when they buy goods locally, it also means that Kiwi retailers can't compete fairly with foreign websites that don't have to charge GST," he said.
"We know it's leading to the closure of some shops locally and the loss of jobs, so we think the Government needs to close that loophole as a matter of urgency."
Eugen Trombitas, a GST specialist at PwC, said it was likely to be a complicated process.
"There are barriers but nothing's impossible," Trombitas said.
"The real challenge for all of us now is to turn this into an opportunity to create a better framework for efficiency at the border in relation to goods, and if we can solve that then the Government has also solved a tax leakage headache that it's had for some time."
Trombitas said there were already several global examples, including South Africa and Europe, where tax on digital services such as music and movie downloads was being implemented effectively.
But he said it was more difficult for goods and would probably need to involve customs collecting tax at the border.
"I think the Government should absolutely be considering these steps," he said.
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.
"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," Duke said.
"I think competition is fantastic and it makes things fair, but it's only fair if the playing fields are even."
Online shopping tax
• GST is not currently charged on imported digital products such as downloaded music and film.
• Physical goods bought online and worth less than $400 also usually escape GST.
• New Zealand has the second-highest threshold for tax payments in the world.
• Australia has the highest threshold at A$1000 ($1035).
• Most countries' tax threshold is the equivalent of around $25.