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The *real* reason for trade deals?

5 February 2018

You have to wonder why there has been so much emphasis on striking trade deals between NZ and a raft of other countries.

Apparently, so we're told, these deals are to ensure that we get free access to foreign markets and that our goods aren't subjected to tariffs that would make them uncompetitive with their domestic products or those imported from countries other than NZ.

Well that sounds great... but if you look closely at many of these deals, we don't actually see an elimination of tariffs in any reasonable timeframe. For example, how long before the TPP would see taxes on NZ's beef eliminated in Japan?

No, I'm starting to think that one of the main reasons for these agreements might be more related to dealing with the vexing problem of collecting taxes on cross-border purchases.

To get an idea what I'm talking about, read this Stuff story about the 'Amazon Tax' that was first mooted by the last National government and now appears to be gaining favour with the current administration.

The idea behind this plan is that our government will require all overseas sellers who flog more than NZ$60K worth of their product to Kiwis, to sign up as unpaid GST collectors for the IRD.

Now I think you can see what the average Chinese online retailer or similar would think about that.

What ever the Chinese for "get stuffed" is, would be the phrase of the day if the NZ government tried to demand that kind of obedience from such online retailers.

Yet, strangely enough, the government actually believes there will be compliance.

What the hell?

We already have Google, Facebook, Apple and raft of other huge corporates thumbing their nose at the idea of paying tax to the IRD on the real profits they pull out of NZ and if we can't come up with a way to make these guys pay, how the hell do they think we'll get thousands of much smaller traders to play ball?

Well that's becoming increasingly simple to understand.

You can bet your bottom dollar that one of the reasons for striking trade deals with foreign countries will now be so that the NZ government can call on the governments of those countries to provide "enforcement" for such things as the Amazon Tax.

If the Wun Hung Lo online tat-retail shop sells more than $60K worth of stuff to NZers then the NZ government want to be able to call up the Chinese (or whatever relevant government overseas) and say "this trader is effectively violating our agreement", whereupon that foreign government will force compliance within their borders.

Sounds good eh?

Well think about it. I though these trade deals were supposed to ensure a good deal for NZers. How can we be getting a good deal if such deals then hike the price of all our personal imports by 15%?

And what about the flip-side?

How will NZ companies feel if suddenly they find themselves having to collect and repatriate similar sales taxes for a raft of overseas companies?

Imagine a dozen or so other countries make the same demands of NZ that NZ is making of them...

Suddenly, anyone who has an online presence and sells more than a small amount of product to overseas purchasers will be spending an inordinate amount of their time charging these taxes on behalf of foreign governments then completing returns and paying that money to the tax agencies of those countries. This would be a nightmare of extra cost and compliance.

Also, what happens if you sell something worth NZ$100 to someone in the USA after their government demands you collect a 10% tax as well. You charge them NZ$110 (including tax) which might (at the time of the sale) come to US$80. You have therefore, collected US$7.30 in tax for the IRS which will sit in your account for up to a month or so.

At the end of the calendar month, you will take this NZ$10, consolidate it with all the other US tax paid to you by purchasers from that country and then send it off to the IRS.

But... what if the exchange-rate has changed during that month?

What if the money (NZ$10) you collected on behalf of the US government is now only worth US$6.50?

The IRS will be expecting US$7.30, because that's what the customer from that country handed over to you as the tax on that sale. If you only send them US$6.50, because that's what the NZ$10 you collected now buys -- what will happen? Will you have to make up the shortfall -- or will you have to keep inordinately complex records so that you can prove that the shortfall is due to forex rate changes?

This could very quickly turn into an utter dog's breakfast.

If the Amazon Tax soon to be introduced by NZ and Australia is deemed to be successful, you can bet your bottom dollar that most other countries around the world will follow suit and the burden on anyone selling more than a few thousand dollars worth of gear to overseas purchasers will be enormous and unsustainable.

And, in the meantime, Google, Facebook, Apple and the others will continue to repatriate their profits to low-tax countries and thumb their noses at our tax authorities with impunity.

It seems that the agenda is to tax the workers, not the corporates.

I wonder how long before people decide that this is not acceptable?

Is this whole Amazon Tax thing going to cripple international trade at a retail level?

Will it make the viability of a small to medium sized online business with export sales virtually untenable due to the massive compliance and cost burdens associated with being an unpaid tax collector for a raft of different countries?

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