The chances of GST being applied to all overseas web-based retail purchases appear more distant after the Government changed tack on a review into tax of online shopping.

The New Zealand Retailers Association said it was disappointed with Revenue Minister Todd McClay's decision to merge a review into online GST with a wider assessment of the challenges facing this country's tax system.

A working group of Inland Revenue Department and Customs officials was previously expected to deliver a discussion paper on the GST issue - keenly awaited by the retail industry - before Christmas, but their findings appear to have been indefinitely delayed.

New Zealand consumers can avoid GST on many goods bought for less than $400 on foreign websites, such as online retail giant Amazon.


The Retailers Association wants GST applied to all online purchases to "level the playing field", saying the current gap in the tax system makes it more difficult for local businesses to compete against their overseas online competitors, while also losing the country up to $300 million in annual GST revenue.

A spokesman for McClay said the GST working group had been folded into a larger review of tax issues, including tax avoidance by multinational companies through base erosion and profit sharing.

The online GST discussion paper would be merged with the findings of the wider review, the spokesman said, adding that he could not say when the report would be released. While applying the tax to all online retail transactions could prove unpopular with voters, the spokesman said the merging of the reviews had nothing to do with it being an election year.

The decision followed a visit by McClay to Europe late last year, where he found his European counterparts were also assessing the collection of GST on online purchases as part of wider reviews into taxation, he said.

Retailers Association chief executive John Albertson said the online GST review was "of sufficient importance to be treated as a separate entity".

"We would certainly be disappointed that the review has been rolled into a wider review," he said.

Finance Minister Bill English told Parliament's finance and expenditure committee last month that increasing online spending was a bigger threat to the tax base than tax avoidance by multinational firms.

New Zealanders' spending at overseas online retailers grew at more than three times the rate of domestic web-based spending in December, according to the BNZ Online Retail Sales Index.

Factors such as a strong Kiwi dollar, as well as attractive prices available on many foreign websites, are driving growth.

In December, Hallenstein Glasson chief executive Graeme Popplewell said the failure of the tax systems in Australia and New Zealand to collect GST on all online purchases put the retailer - which last month forecast a 39 per cent drop in half-year profit - "at a clear disadvantage".

Customs Minister Maurice Williamson has said it would be virtually impossible to collect GST on all goods bought online.

At the moment, if tax or duties apply to an imported item the buyer receives a letter from New Zealand Post instructing them to arrange payment with Customs.

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