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Nailing jelly to a tree -- with GST

One of the great things about the internet is that it has turned the world into a global community where the exchange of ideas, opinions, information, goods and services can be achieved as never before.

It is now often easier to contact someone on the other side of the world than it is to get ahold of your neighbour. Sometimes it's also easier to buy something directly from China than it is to purchase it at your local shopping centre.

Whenever such dramatic change occurs there are always going to be winners and losers. For every gain there's going to be a loss.

Telcos such has Telecom have faced massive losses in profits from international toll calls and NZ Post is seeing dramatically reduced mail volumes -- but ISPs have found their earnings steadily climbing as VOIP and email boost their fortunes.

Now, faced with a growing move towards direct personal imports, retailers are finding that they're losing out to competitors from all around the world. They're not happy and want government to take action.

The best action, they believe, will be to ensure that all personal imports attract the appropriate amount of GST.

And you have to have some sympathy for their plight.

How can a local retailer possibly sell their products at a price that comes anywhere near to that which can be had by direct-import?

Not only can customers buy directly from China and other sources at prices that are sometimes less than the local wholesaler offers the retailer, but personal imports which would attract GST of less than $50 are allowed into the country with no GST at all.

So, the retailer has to add a margin to cover their overheads and produce a return on their capital investment, plus they have to collect GST for the government -- those factors make it impossible for the local shopkeeper to compete with the likes of DealExtreme and a thousand other direct-sell web-based retailers -- or even the likes of Amazon.com

As a result of this, retailers have lobbied government and government are considering some significant changes to the tax-free limits for personal imports.

Now this sounds all fine and well -- simply charge GST on all personal imports, regardless of their value -- but will it work?

Well it's a plan fraught with peril and flaws.

Firstly, low-value imports that might only be worth (say) $10 would attract punitive taxes at a rate (once the "fees" also involved were added) that would effectively be as high as 400% of the actual value.

So, if your aunt in England decided to send you a nice calendar for Christmas with a declared value of 5 GBP, you might have to front up with NZ$40 before customs would hand it over. Surely that's hardly fair?

Remember that in the eyes of the law, it doesn't matter whether *you* paid for the inbound items or not -- they are taxed at their actual value or the amount you paid -- which ever is the greater. This is done so people don't simply have the products they purchase labeled as "gift" and thus evade tax/duty.

This strategy also allows "virtual" goods and services to evade the tax net. If you buy software from overseas which you download directly onto your PC it effectively remains untaxed -- yet the very same code brought in on a DVD will be stung with GST and all those fees. Is that fair?

One "solution" proposed to avoid all the hassle of intercepting, valuing, charging and collecting taxes at the border is to simply have the credit-card companies charge the GST on all international transactions.

This sounds like a simple solution -- but it is also flawed.

If Visa and Mastercard were recruited to act as tax-collectors, I can see huge opportunities for other bartering and trading currencies to appear in cyberspace. Those who earn money online could accept payment in cyber-rands and those who sell products or services in cyberspace could opt to accept payment in cyber-rands -- effectively bypassing the banks and the taxes that would be otherwise levied.

In short -- if the government attempts to lower the threshold for collecting GST on personal imports they could find themselves trying to nail jelly to a tree. They'll also likely suffer a nasty backlash from those who have discovered the joys and savings intrinsic to international online shopping.

Can you imagine what would happen to local retail DVD and CD prices if the GST and fees on personal imports effectively hiked the price of purchases from Amazon by $50 per disk? I suspect we'd see a significant "upwards adjustment" in our local shops pretty damned quickly.

I feel sorry for retailers caught up in the change of business model but, like the recording and movie industries, perhaps it's time they realised that the internet is changing the world forever, and some of those changes present new challenges and opportunities to existing players.

You can whine about it and go crying to mummy-government, or you can stand back, take a good long look, and realise that there are as many opportunities as there are hurdles. If you can't be bothered changing your business to take advantage of the opportunities, perhaps you deserve to fail.

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