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Out of date and out of ideas

19 February 2019

A couple of interesting and related stories caught my eye yesterday.

They both clearly demonstrate just how the internet has invalidated so many concepts that have been a part of our business world for many, many decades.

The first one was the government's statement that they're going to look at ways to levy a "digital sales tax" on internet companies such as Google and Facebook -- in order that they pay their fair amount of tax here in New Zealand.

As most people know, many hi-tech companies based offshore and selling into New Zealand pay an incredibly low effective rate of tax. According to this story, Google paid just $393,000 tax on NZ revenues estimated to be in the hundreds of millions. Other sources have suggested that Apple and Facebook are similarly paying just a token amount of tax, if any at all.

Now, whilst I applaud the governments worthy goals, I fear that their methodology betrays their total lack of smarts and an unwillingness to accept that the internet has changed the world forever in ways they can not fix within the existing system.

For a start, a "digital sales tax", like all sales taxes, is almost certainly going to be paid -- not by the companies concerned but by consumers. In trying to extract more tax from these offshore corporations, the government will simply succeed in pushing up the cost of their services to Kiwis and Kiwi companies. How will that help our economy?

Secondly, various governments have had plenty of warning that this problem was coming because Kiwis have been buying from overseas companies for decades and those overseas companies have effectively not been required to pay tax to the IRD on the profits from those sales.

As an avid electronics enthusiast (and later professional), I've lost count of how much money I've spent buying stuff from US catalogs -- you know, the old printed ones that came in the mail long before the internet was a thing. Did the government attempt to tax those US-based suppliers of the bits I could not source locally?

Of course they didn't -- but they knew such sales were taking place but even things such as import duties and sales taxes were not a tax on the foreign companies doing the selling, they were a tax on consumers here in NZ.

It was clearly obvious that once we could replace paper catalogs with online websites and replace bank-drafts with credit cards or PayPal then the scale of this problem was going to skyrocket. Even once these companies figured it was worthwhile to set up a token Kiwi presence, it was obvious that they were going to shift profits out of NZ to countries with lower tax rates. Still the governments of the day did nothing.

Now we have government running around trying to roll out new taxes such as the Amazon/Netflix tax and the just-announced "digital sales tax" -- but they're still missing the target because it's Kiwis who'll be paying those taxes, not the offshore companies.

The second story I read was this one related to the Viagogo ticket selling service.

Once again this clearly demonstrates how we are bereft of ideas to cope with foreign companies selling direct to Kiwis over the internet. This company is beyond the jurisdiction of our authorities and our courts so there appears to be nothing (effective) that can be done -- until such time as legal action is brought against it in its country of registration.

New Zealand is not alone in dealing with these issues of cyber-based companies yet I see no concerted will or action on the part of the world's governments to address the issues that are very clearly apparent.

Why is that?

Well perhaps we'd need to see what's going on under certain tables and over certain boozy lunches to get the real truth... but one thing is clear. The NZ government is going to try and con the public into thinking that they've got a solution to getting more tax out of the big cyber-corporates when in fact, they're just going to be taxing you and I instead.

Someone, please whack our politicians up-side the head with a clue-by-four because they really need it.

If this is their strategy for dealing with the problem then either they are utterly stupid or they believe that the NZ public are utterly stupid and will not see this move for what it is -- just another tax on Kiwis, not a tax on overseas companies.

It's time to say that our century-old taxation system is "not fit for purpose" when it comes to dealing with taxing offshore companies selling into NZ without an actual presence or who profit-shift to lower-tax places. Maybe it's time to dispense completely with the concept of corporate taxation and instead focus solely on sales taxes, capital gains taxes, transaction taxes or something.

What do readers think? Is it time for the government to admit it's clueless and ask the public for their input? Is it time for the people's of the world to demand that their governments start working *for* the people rather than for the corporates who spend huge sums on lobbyists and those boozy lunches for politicians I mentioned?

If not, I'd advise any NZ business not to set up shop here but simply create a legal entity in Antigua or some other tax haven and then sit back and enjoy your tax-free existence. You'd be a fool not to -- unless you have a social conscience that is.

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