Changes to GST for overseas retailers came into effect on December 1. What do these changes mean for consumers, local businesses, and the online shopping market in New Zealand?
This Christmas thousands of smart Kiwi consumers have done a lot of their gift shopping online. After all, it seems a waste of time to join the swarms heading into malls for last-minute pressies when you can get all your holiday shopping done in your pyjamas, to be delivered right to your door.
But for local businesses, there’s been a downside to the growth of online shopping: They’re up against overseas retailers with access to cheaper, more extensive inventory who didn’t need to charge GST – until now.
For years, the allure of cheaper prices at overseas websites has sent Kiwi money offshore, as international giants like Amazon and ASOS have become go-tos for New Zealand shoppers. But changes to the law have started to level the field, and since December 1 all ‘small goods’ ($1000 and under) from overseas are now charged 15% GST. This charge can either be absorbed by the retailer or, more likely, added onto the cost to the customer. So a $50 shirt will become $57.50.
Unsurprisingly, Kiwi-owned businesses are welcoming the change. Andrea Bailey, company director at shoe retailer Andrea Biani South Island, says she hopes it will encourage shoppers to be more mindful of what they’re purchasing, and where it’s coming from.
“Sure you’re always going to get variety online, but all Kiwi retailers do their very best to get the best of what’s available in the marketplace. I think it’s going to make people think a lot more about their purchasing decisions.”
GST is charged on most goods purchased within New Zealand. So rather than an extra fee on overseas shopping, it’s better to think of the new GST charge as levelling the playing field with our local stores, says Richard Lemon, Kiwibank commercial manager.
“You have a situation where all of the people who invest in New Zealand communities, who are living in New Zealand communities, who are employing other people from those communities, are getting penalised by overseas firms who don’t have to pay that tax. It’s not healthy and it doesn’t feel right.”
The change could convince Kiwi customers to be a lot more mindful of where they’re making purchases, say Kate Bennett and Kate Griffiths, accountants at Kendons. And this could mean people choose to shop closer to home this Christmas.
“It might actually bring a bit more purchasing back onshore again. Rather than buying all your clothes from Australia, you’re incentivised to buy more local if the price difference isn’t as great,” says Griffiths.
Overseas shopping has long been the answer to expensive imported products in New Zealand stores. Despite the new tax, many items will remain cheaper to buy from overseas. Bailey says she realises people often go where the deals are, and she can’t stop that.
“There are always going to be items that are cheaper in one place, because we do work in fashion in opposite seasons, and deliveries into Europe will always be ahead of what we receive in the Southern Hemisphere. A good product is a good product at the end of the day, and it’s up to the consumer to make that decision.”
Certain items will actually become cheaper under the new law. Companies that make less than $60,000 a year in New Zealand will be exempt from the GST levy, and some companies making over this amount probably won’t register here anyway.
“It ultimately comes down to ‘what control does New Zealand have over overseas entities?'” says Bennett. “How can they police it?”
In tandem with the new GST charge, the government has dramatically cut the customs duty charges that can hit customers with an extra bill when their product enters New Zealand. The IRD website uses the example of a $300 jacket. Under the old regulations, this would have been charged a 10% customs tariff, 15% GST on top of that, and also a $50 border processing fee when it entered New Zealand. That $300 jacket quickly accumulates another $130.
With the new GST tax, the extra cost would be just 15% of the original price, paid at checkout, so the total would come to $350.
There are other reasons to buy local, says Bennett. If a product is the wrong size, faulty or just not exactly right, it can be a lot harder to deal with an overseas company. “Do they return it overseas? If they’re using a local supplier… with online or instore purchasing, it’s so easy to do that exchange of products. There are so many positives to shopping local,” she says.
The changes might give more incentive for brands to move into the country, too, says Kiwibank’s Richard Lemon.
“It might mean that [companies are] better able to stock and supply items that were otherwise out of their ability to be competitive with. You might see an increase in ranges and product lines available in retail and domestically because they’re 15% more competitive. People say they shop online because they can’t get what they want in retail stores here in New Zealand and the level playing field will help that product range increase domestically.”
Bennett also says it will help local businesses tackle some of the threat that comes with companies like Amazon, which already holds so much of the worldwide online shopping market.
“In regards to some of the bigger overseas businesses who are going to be charging GST, I think there’s potential opportunity for the New Zealand retailers to become a little bit more competitive. In terms of the competition with Amazon and the big players that will be registered for GST, it effectively evens the playing field a little bit.”
But what about the consumer? It’s likely the consumer will be footing the bill for the 15% GST. Christmas shoppers may have already noticed higher prices when browsing items online, but Lemon says shoppers shouldn’t fret.
“Taxes are how we pay for hospitals and teachers and new hips and all of that. I think consumers won’t know or will be completely unaffected [by the new GST charges].
“In fact, you could say that long term they’re benefitting.”