From 1 December, everything you buy from foreign online retailers will be taxed. Here’s what you need to know about the pending changes and how it will impact you and your shopping.
The current situation with GST
Currently, if you have been buying products from overseas based online retail stores, you may not have been required to pay goods and services tax (GST) or import duties if the items purchased are of low value. GST and import duty fees are only charged on goods valued between $226 and $400, and is dependant on the tariff for each item.
For example, a handbag that costs $399 and incurs no duty fees, will not have any duty or GST charges attached when it comes through customs. However, a pair of shoes that costs $227, which typically includes a 10% duty fee, will incur GST and duty charges.
What changes are happening with GST and why?
According to NZ Customs, from 1 December 2019, overseas businesses that sell goods valued at $1000 or less to consumers in New Zealand may need to register for, collect and return, GST
In other words, Kiwi consumers will face GST on any products they purchase that are valued at $1000 or less. The $1000 threshold is based on the customs value of the goods. This means transport and insurance costs are excluded when determining if GST needs to be charged. If you’re purchasing items that are valued at $1000 or more, you won’t notice much of a difference between the current rules and the changes coming into place.
These changes are being implemented to level the playing field for New Zealand businesses, who, according to Revenue Minister, Stuart Nash, have been in competition with foreign retailers selling the same products into the New Zealand market without collecting GST. The changes will not only encourage consumers to buy locally, but will mean less tax revenue is lost.
How will GST and tariffs be collected?
Foreign online businesses that earn more than $60,000 per annum from Kiwi consumers will be required to collect GST at the point of sale. Where a business does not meet this threshold and your order is less than $1001, you won’t be required to pay GST.
Though Customs will only assess the GST and duties payable at the border for items valued at $1000 or more, it will assist Inland Revenue to ensure overseas businesses comply with the new law.
Once the changes come into play in December, tariff duties and cost recovery charges will no longer apply to orders under $1001. This means that consumers purchasing items valued between $400 and $1000 will generally pay less than they do currently.
At present, duties and cost recovery charges are collected if the total tax payable is more than $60; anything recovered below that amount outweighs the revenue earned.
How will these changes be enforced?
Inland Revenue has international agreements in place that allows the agency to monitor for non-complying retailers, as well as ask their counterparts in foreign countries to collect GST on their behalf or pursue unpaid taxes.
Exceptions to the rule
According to Inland Revenue, overseas businesses will not charge GST on supplies of fine metal, alcohol and tobacco products due to fine metal being exempt from GST under existing rules and most alcohol and tobacco products are already subject to excise taxes and GST.
Low value goods sold to GST-registered New Zealand businesses for use in their business are also excluded under the new rules. This is because businesses are able to claim back GST on these purchases.
How will this impact our spending?
Naturally, the new changes mean that you’ll likely pay more when you make purchases through a foreign online retailer. The best way to avoid price hikes that result from GST being included is to buy locally wherever possible.
If you must buy online through an overseas retailer, you could use credit cards that offer low fees, low interest rates or even no international transaction fees. This could help reduce the overall charge you’ll have to pay for your overseas purchase when using a credit card, as most often you’re charged an international transaction fee or exchange rate charge when purchasing from a foreign business.
Find the credit card that best suits your needs, particularly in terms of purchasing goods through foreign online retailers, by using Canstar’s credit card comparison tool here.