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Card companies not set up to collect GST from online shoppers, Mastercard says

Thursday 11th July 2013

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Credit card companies are "not set up" to collect tax on cardholder transactions and even if it were possible, online shoppers would quickly migrate to other payment platforms, such as PayPal, says Alfred Naffah, New Zealand manager for Mastercard.

Responding to reports that three government agencies are examining ways to collect GST on low-value imports bought over the internet, Naffah said: "It's a dangerous path to suggest we start playing the role of tax collectors."

Official estimates put the loss of revenue annually to the New Zealand tax base at around $300 million from people avoiding GST by buying goods online from offshore rather than in New Zealand, with that figure growing fast as the popularity of e-commerce grows. The exemption on GST is for imported goods worth less than $400 and is blamed by local retailers for denting their sales and competitiveness.

Among proposals being considered by a task force of three government agencies - Treasury, the Inland Revenue Department and the Customs Service - is using global credit companies to collect tax when purchases are made.

But Naffah told BusinessDesk that was "not do-able."

For a start, card issuers did not have a direct relationship with either shoppers or retailers.

"That's not our business model," he said. "The relationship is between the bank and the consumer, and the merchant. We don't have the right to draw on their (the consumer's) account.

"To create that right, we would have to enter into a contractual relationship with the millions of people who carry our cards. That's not doable."

"Whatever happens, the banks need to be on board. There would be significant systemic work they would have to undertake. It would be a legal minefield changing the terms and conditions."

Non-bank payment engines like PayPal and POLI would also need to be brought into the loop, as "consumers and retailer will find a way to get around" paying tax if legitimate avenues exist.

"That's always the way with regulatory intervention," said Naffah. "It's never effective and it becomes a lifetime's work for the regulator."

Intense lobbying by the Retailers Association and Booksellers New Zealand is behind the creation of the task force.

Small value items such as books, clothing and footwear are among goods commonly imported, with research cited in Victoria University research on the issue, published earlier this year, showing wider choice is a greater motivator than lower prices for online shoppers.

The same research, conducted for Booksellers NZ by the Institute for the Study of Competition and Regulation, also found the New Zealand "de minimis" threshold of $400 was higher than in many other countries.

BusinessDesk understands former Revenue Minister Peter Dunne was initially unmoved by representations from local retailers, because he assumed collection costs would exceed revenue gained. However, that view changed when concrete suggestions for ways to tax low-value imports started to emerge from the sector.

Dunne's replacement, Todd McClay, is now awaiting the officials' report before taking further action, but is understood to be engaged on the issue.

The Ministry of Foreign Affairs, while not formally involved in the departmental task force, has also been briefed on proposals to use amendments to existing free trade agreements to try and shore up a source of revenue leakage that is concerning governments worldwide.

"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," ISCR said in a paper published in March.

Booksellers chief executive Lincoln Gould told BusinessDesk there was some misunderstanding among New Zealanders about the initiative, which aims only to create a level playing field for tax purposes.

Many people believed locally sold books were too expensive already, but there were "a lot of issues with the price of books a long way away from the source of supply", so competition from imported books was always going to be fierce.

"But this (exemption from GST) is a 15 percent challenge to competitive before you even start," he said.

However, New Zealand was unlikely to be able to follow the United States, where some 17 states have now enacted laws requiring online retailers to apply and collect state sales taxes on purchases that cross state borders.

"I don't think New Zealand can force an offshore company to do anything," he said.

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