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GST on OnLine purchases

July 22, 2013

Adam has been following this issue in the local press. It seems to Adam that much of the local protestation is protectionist in nature. From personal observation many local retailers offer little service and this is often coupled with poor ranges of stock and lengthy delivery times for out of stock items. In addition many outlets are hamstrung over pricing by the large mark-ups exacted by distributors in some cases, original vendors in others and by the retailers themselves.; or by all of them.

It is little wonder that many customers chose to buy items from overseas.

The poor web presence of many NZ businesses does not help. The websites are often badly thought out, infrequently refreshed and appear geared to avoiding transactions in many cases.

Adam would have much more sympathy with local retailers if they actually did something to improve their ranges, prices and service.

Furthermore, NZ depends on free trade and market access so indulging in this sort of tax based protectionism is highly undesirable.

Therefore it was with interest that he read this letter in the UK Telegraph (online) concerning a somewhat similar debate taking place in the UK, some extracts from a letter to the UK Government are below with some commentary by Adam:-

A popular view has been that bricks and mortar retailers have a high tax burden whilst a few very large international online businesses pay a small amount of tax here, therefore the tax system for all online players – big and small, UK and international – should change. But this is a red herring, an issue of domicile not online retail.

Typically we hear in NZ about the so called pernicious impact of The Gap, Amazon and other major retailers and the fact they do not pay taxes in NZ. As the letter points out that is not a retail issue as such.

An online tax would kill entrepreneurial spirit by making it harder for smaller online retailers to get started.

In fact in NZ it would be interesting to assess just how many smaller businesses start with a web presence and whether this helps them to market outside of NZ.  The UK proposal is more about business rates it would appear, at least initially.

The letter then goes on to note

It would also have a detrimental effect on the supporting industries in technology, manufacturing, logistics and marketing which have been key partners in the growth of online retail. In addition many online companies are exporting to Europe and beyond which can only be achieved successfully if there is a sound base at home.

In this regard Adam notes that NZ Post and others  offer a service for purchasers in NZ to have goods sent to a US address for transhipment to NZ, thus getting around in some cases barriers from some retailers with regard to direct supply to overseas markets

A further comment notes:-

The idea is vague and ill thought-out. Does it include just those retailers which operate online-only, or those with stores too? Should online travel agents be wary? Could it also capture online financial services providers? There is no logic to penalising companies that provide consumers the convenience, efficiency and value online shopping offers.

In fact in NZ the fact is that to a very large extent it will be consumers that will be penalised in the first instance, but in the longer term our trading partners may well note the imposition of such a barrier and react negatively.

This lobbying by NZ retailers smacks far too much of a cry for protectionist assistance from the government, rather than an acknowledgment that business models need to change, change rapidly and quite possibly change frequently.

Consumers and forward thinking businesses should lobby for this proposal to be dropped. Instead they should lobby for better domestic pricing, better service and better ranging by retailers where range is an issue.

One Comment
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