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VAT refunds for tourists

I recently traveled through Europe and Singapore.

Now I’m not the world’s biggest shopper by any means but I did spend enough to consider applying for a VAT refund as I left the EU.

But consider it is all I did. When I saw the queues and paper work involved I decided it just wasn’t worth the hassle.

On the other hand, the Singapore refund scheme is amazingly easy and quick, so I took advantage of it.

This is probably a case of size making a difference. The European VAT system is much more complex than Singapore’s, especially with several countries involved.

Nevertheless, what stood out with the Singapore system was their greater use of technology which avoided a lot of paper work, sped up the process and shortened queues considerably.

Well done Singapore!



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Online trading – again

Once again the issue of internet purchases coming in to NZ GST free is hitting the news.

See here

In my view this needs to be addressed. The size of the problem will only increase. Having any kind of exemption like this distorts our GST system and favours some at the expense of others.

But in finding a solution we have to consider the treatment of services which are imported into NZ. More and more imports of physical goods like books/DVD’s are being replaced by electronic downloads.

There’s a huge difference between the treatment of importing a physical book and importing an electronic book.

The GST free threshold for private imports of physical books is up to $400. However, electronic books with a value up to $60,000 can be imported privately before any GST applies. The same applies to any physical product for which there is an electronic alternative.

In my view Governments with VAT/GST systems need to be addressing these border issues on a multilateral basis, in a similar way to how double taxation is dealt with by Double Tax Agreements between States.

That will be a lengthy process however and in the meantime hard practical solutions are required if a country is going to ensure foreign retailers compete fairly with domestic retailers for the same consumer dollar.

Yes there will be administration and collection costs but that could be the cost of having a system which is fair to all.


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Good news for non resident businesses

Non resident businesses looking to establish supply chains into New Zealand have to go through hoops to register for GST here and recover the GST on their NZ expenses. Often it means they’re at a disadvantage when compared to businesses established in New Zealand.

Yesterday Revenue Minister Peter Dunne said the Government intended to implement a proposal in an August 2011 Discussion Document to relax the rules for non-residents GST registering in New Zealand. This isn’t about giving non-resident businesses something they couldn’t already get. It’s about making it easier for them with less administration. That’s good for the businesses and good for Government Administration.

It’s also good for New Zealanders who do business overseas. If this change goes ahead we will be more aligned with Australia and other countries around the world with VAT based systems. In some of those countries New Zealand exporters cannot recover VAT costs because our system does not reciprocate. This change means NZ businesses will find it easier to claim back refunds of VAT overseas.

Not a game changer but definitely an improvement.


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All Black Rugby World Cup jerseys

The furore over being able to buy the new AB jerseys overseas for less than they are sold locally once again calls into question how well our tax legislation is dealing with internet commerce.

The pricing of the jerseys overseas would seem to allow them to be imported into New Zealand GST and duty free (provided only one is imported at a time).

NZ retailers are again (understandably) questioning the tax exemption threshold for imported goods.

In my view the issue here is how well our tax system deals with e-commerce. There needs to be a technology based solution to ensure consumption taxes are being imposed where the consumption occurs. Domestic legislation can have some impact but ultimately countries need to deal with this issue multi-laterally.


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Tax free shopping zone for Christchurch?

A tax free zone in Christchurch has been suggested by a new business owners’ group there.

I think it is a well intentioned idea which poses some reasonably big challenges in practice.

The intention is to encourage businesses (and shoppers)to return to the CBD during the re-development.

The boundary issue is the most obvious practical consideration. Where will the lines for the tax free zone be drawn? Every time there’s a boundary in tax there are winners and losers. There are also those who will modify their behaviour to take advantage of the boundary.

If the plan went ahead we’d almost certainly see some businesses around the fringes of the CBD lobbying to be included in the tax free zone. Shops just a few metres from each other could conceivably have quite different tax treatments.

We might also see some who take up temporary residence in the tax free zone to take advantage of the concession as long as it is in place.

There are other issues to sort out when designing the tax free zone. For example, does it apply to purchases from those businesses situated within the zone or only those purchases which physically occur within the zone? In other words, does it apply to internet purchases from a business which is inside the zone?

A technical issue is whether the proposal involves an “exemption” from GST or “zero rating”. They are quite different. In my view “zero rating” is more likely to produce the benefits the proponents of the idea want. Technically this means prices would be subject to GST but at a rate of 0%. That is less complicated for the businesses and produces quicker benefits than an “exemption” from GST.

Also, will the tax free status apply to business transactions as well as sales to private consumers?

It has been suggested ordinary commercial transactions would still be subject to GST. If that’s the case retailers will have to monitor which sales are which and, if they get it wrong, could be penalised under current law. This is important because there would be a financial incentive for some businesses outside of the CBD to take advantage of the tax free zone by buying business inputs within the zone. This could have the perverse result of giving those businesses an advantage over their competitors who are not able to buy within the zone. I’m sure that’s not what the supporters of the tax free zone would want.

Care will also be needed towards the end of the tax free period. Removing tax exemptions is challenging. When people know the change is coming they’ll respond. There is bound to be a jump in retail activity just before the change. There’ll also be some who seek to take advantage of the tax free period for as long as possible by manipulating the rules, perhaps by entering in to pre payment arrangements and such like.

These are merely some of the practical design issues which admittedly can be dealt with if there is political will to support the idea.


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Low value import de minimis stays at $60

The Minister of Customs has just announced the low value import de minimis is to stay at $60.

This follows a review of the threshold which considered whether it should be increased. The review was also to look at how the de minimis applied because it can be confusing when imported goods are subject to tariff duty and GST.

I’m not sure whether that means there will be no change to the calculation method. That’s not clear from the Minister’s announcement.

Just to recap: what this means is, if the combined tariff duty and GST on the imported goods is less than $60 it will not be payable to Customs. For an item which has only GST charged on importation [because no tariff duties apply] that means if it is worth less than $400 the GST will not be collected by Customs. For items which are subject to tariff duty, such as some clothing, the free import value will be much less, more likely around $300 but it does depend on how freight, insurance and other costs are calculated.

New Zealand retailers who were worried the duty-free limit might increase will breathe a sigh of relief. There’s unlikely to be a sudden rise in people importing goods purchased online.


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Debate on GST and private imports

Today’s NZ Herald editorial argues collecting GST on low value imports is more trouble than it’s worth and advocates retaining an exempt threshold.


The debate seems to be gaining momentum and the Customs Department are in the middle of a public consultation process on this issue.

Some feedback providers to the Herald reckon collecting GST on small imports wouldn’t be as costly as the Herald suggests. The solution apparently is to get credit card companies to collect the GST. Interesting solution. Rather than government paying the costs of collecting these trivial amounts of tax we’ll just get someone else to. That way it’ll be free to collect and the government will have the extra money! Goodness me, are there really people out there who still believe in free lunches?

If we’re going to crack down on these low value imported goods surely we have to get stuck into imported services? At the moment you can import up to $60,000 of services for private purposes without paying GST. That applies to music, software, e-books and anything else delivered digitally yet the threshold for imported goods is $400.

And, what about those people who buy stuff overseas when they’re travelling and bring it into NZ duty/GST free using the $700 threshold?

To me the issue here is not whether we have an exempt threshold but whether we’re being consistent in how we tax goods and services imported into NZ.


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More on NZ’s low value import rules

NZ Customs is proposing to relax the low value asset threshold for imported goods. Here’s a paper they’ve prepared for Government’s consideration.

Click here.

In essence NZ Customs suggests allowing more low value goods to be imported without GST or other customs charges applying.

This is interesting timing given Australia is reviewing whether they should be tightening the rules for duty free imports to protect domestic retailers who say they are unfairly prejudiced by the ability of consumers to buy low value products from offshore internet sites like Amazon etc.

From a simplicity perspective the NZ Customs proposal is appealing. The current threshold works in an unnecessarily complicated way.

Nevertheless, as consumers make greater use of the ability to buy goods directly from overseas I can well imagine rising pressure from our retailers to remove or at least reduce the threshold here.


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Australia shines spotlight on e-tailing

The Australian Government has set up an enquiry by their Productivity Commission into online shopping and the impact on retailers.

There’ll be lessons here for New Zealand.

I think it’s difficult to contemplate an end to tactile retail therapy which so many Kiwis seem to enjoy as their weekend leisure activity of choice. However, from the work I do it’s clear e-tailing is becoming an increasingly popular way to shop. Recently I’ve seen more and more overseas businesses establish direct selling channels into New Zealand. Clothing, electronic goods, books and toys seem to be particularly popular. To some extent old-fashioned retail shops are seen as unnecessary intermediaries with consumers chosing to order directly from overseas distributors or sites like Amazon.

The Australian Government has recognised a need to examine the impact of this activity on their retailers. There’s an impact for the Government too in the form of reduced tax collections and this has prompted an accompanying campaign in Australia to ensure GST and customs duty concessions for low value imports are not being abused.

New Zealand has similar concessions which I’ve discussed before. Broadly, goods with a value of up to $400 may be imported duty and GST free. This can mean savings up to around $60 on a $400 purchase.

The outcome of the Australian enquiry will be very interesting. Even more interesting will be how the Government reacts if it concludes action is required. Surely e-tailing is here to stay which means the Government’s options for levelling the playing field (if indeed it’s necessary) may be limited. The most obvious tools in their tool box will be in the tax (read GST) and customs areas.

Have a great xmas everyone and happy shopping!