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APEC-wide deal on e-commerce tax avoidance proposed

Thursday 21st March 2013

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A new kind of international pact to ensure taxes and customs duties are collected on goods bought online is proposed in new research by Victoria University's New Zealand Institute for the Study of Competition and Regulation.

Commissioned by Booksellers New Zealand, which has been battling falling local sales of books because of the onslaught of imported books which are ordered online and escape the 15 percent rate of goods and services tax, the paper suggests the APEC trade grouping is a logical place to start working for such an agreement.

The paper is attracting political and official interest because of the growing threat to the tax base caused by the global growth of online retailing.

While it was "conceptually attractive" to get credit companies and banks to collect taxes and duties on goods crossing borders, it would be costly and impractical, the ISCR paper says.

"We believe the most promising long-term solution is the establishment of a multi-lateral agreement through APEC or other international organisations designed to encourage, rather than force, online firms to collect and remit sales taxes to the respective nations."

The proposal got its first public airing at a seminar in Wellington yesterday.

"We believe the establishment of such a system is feasible, given the worldwide nature of the problem," says ISCR, although it says the World Trade Organisation would be too large a body to try for such a deal, because of the difficulty of agreement from a very large number of nations.

APEC is a 21-member association of Pacific Rim economies, including the US, Japan, China and Australia. While the institute concedes that leaves Europe and the UK out of the arrangement, it may be possible to involve the European Union as a bolt-on to such an initiative.

The alternative is to let retailers suffer the inequity, in New Zealand, of overseas, online suppliers maintaining a 15 percent price advantage over domestic retailers.

The report cites research showing New Zealanders bought about $3.2 billion online last year, with growth of 14.3 percent and an annual total of perhaps $5.4 billion by 2016.

However, it also concedes the proposal would not capture sales of non-physical products and services online, such e-books, downloaded music, or software downloads from offshore. That would have to be a second leg of such a multi-lateral push, ISCR suggests.

However, it says it's time for governments to act, since "consumers are increasingly purchasing goods offshore for the primary reason of avoiding GST."

If that loophole were removed, according to research cited by ISCR, there could be a drop in offshore, online sales of between 45 per cent and 60 percent, offset by an estimated sales increase of 27 percent for local, online retailers, who would automatically be accounting for GST.

"Not only would government revenue rise, but domestic retailers would be revitalised, resulting in increased employment and higher company and higher PAYE tax revenues," the report says.

Such a multi-lateral approach would also see a significant streamlining in border control procedures, freeing up postal and customs agents from working out whether duty is payable on imported goods to detecting illegal or unwanted imports.

The study suggests global online retailers would join the scheme because they would benefit from faster, lower cost deliveries.

"The most promising method for attracting voluntary compliance is fast-tracked processing of goods coming through the border."

However, there would need to be checks on retailers fraudulently charging customers for GST and not paying it. "We do not have an easy solution."

The paper is also critical of current customs and GST thresholds, which are difficult to apply in practice.

At present, goods attracting duties and tax of less than $60 are exempt from paying such taxes. However, because some goods have duties and others are duty-free, this means the threshold can range from $226 and $399.

"We strongly recommend changing to a minimum value threshold," ISCR says.

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