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30 September 2019

GST coming to online shopping

A new government collection scheme means purchases through overseas online retailers will be subject to GST from December 2019.

Books, electronics and clothes you buy online from overseas retailers are destined to be taxed the same way as stuff you buy down the road.

What to know

  • From 1 December 2019, most overseas businesses that sell goods to Kiwi consumers are required to charge GST on products valued at $1000 or less
  • Tariff duties and cost recovery charges will no longer apply to most orders under $1001
  • The changes mean items under $400 will in general be more expensive, while consumers will generally pay less on orders valued between $400 - $1000
  • The government says the change will help level the playing field for NZ businesses, and result in less tax revenue being lost

What’s happening?

At present, if you order a product from a company based overseas, you may not have to pay GST or import duties on the purchase. The threshold for when the fees kick in sits between $226 and $400, depending on the tariff for that item. For example, handbags (which attract no duties) costing $399 and under will cross the border without any duty or GST charges, but shoes (with duty of 10%) costing $227 or more will produce a Customs invoice.

From December 2019, overseas businesses that sell goods to Kiwi consumers will be subject to GST on products valued at $1000 or less. Originally, the rules were set to change on October 1, 2019 but the government gave companies a two-month extension.

Pricing examples

$50 t-shirt
  • Now: No charges apply
  • December 2019: $50 + GST = $57.50
$300 jacket
  • Now: 10% tariff + GST + $55.71 cost recovery charges = $435.21
  • December 2019: $300 + GST = $345
$600 dress and $500 shoes (combined order $1100)
  • Now: 10% tariff + GST + $55.71 cost recovery charges = $1447.21

  • December 2019: 10% tariff + GSTᴬ + $55.71 cost recovery charges = $1447.21

Customs will only charge GST at the border if it has not already been collected by the retailer.

How will the tax be collected?

Overseas retailers will be tasked with collecting the tax at the point of sale if they earn more than $60,000 a year from New Zealand shoppers. If a retailer doesn’t meet this threshold and you order less than $1001 of goods from it, you won’t pay any GST. Customs said it will only assess the GST (and duties) payable at the border if the packaged items are valued at more than $1000, but will help Inland Revenue ensure overseas companies are complying with the new law (see "how will this be enforced" below). If you're buying more than $1000 of goods, you won't notice much difference: you're still on the hook for GST, duties and admin fees.

What about tariffs?

Tariff duties and cost recovery charges will no longer apply to orders under $1001. These duties currently kick in at the border if the total tax payable is above $59. The cost of collecting anything below $60 outweighs the revenue earned. By dropping tariffs and cost recovery charges, consumers will generally pay less on orders valued between $400 and $1000.

How will this be enforced?

Inland Revenue said it will monitor for non-complying retailers. Under international agreements, the agency can ask its counterparts in some countries to collect tax on its behalf or assess and pursue unpaid tax through a retailer’s national courts. “Of course, we prefer to work things through with [retailers] to encourage them to do the right thing from the start,” an agency spokesperson said.

The Australian government introduced a similar GST collection scheme for overseas retailers in 2018. It's threatened to impose penalties on non-compliant companies and intercept their funds leaving Australia.

Why is it happening?

The government says it wants to level the playing field. Overseas retailers have been able to avoid paying GST but high street retailers can’t, making it harder for them to compete. The rapid growth of online shopping also has implications for the government’s coffers: more consumers buying goods offshore ultimately means less GST is collected.

Are there any major exceptions?

Most alcohol and tobacco will be stopped at the border, regardless of value. Customs will continue to charge excise tax and GST on these orders.

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