GST changes hit imported goods from 1st December 2019

By Steve Biddle, in , posted: 25-Nov-2019 08:00

A law change coming into effect from the 1st December 2019 will mean the end of GST free imports into New Zealand for consumers. The change may not however have the intended effect that many retailers wished for.

At present importing goods into New Zealand is governed by what can only be described as complex rules regarding GST, duty, Customs and MPI biosecurity screening processing fees. The simplification of these rules is a good thing, will mean importing goods will be a lot easier, and in what can only be described as an unintended side effect, in many cases will actually mean savings for end cunsumers

At present all goods imported into New Zealand are subject to GST and duty if it is applicable to the products, however the resources that would be spent to process every package entering the country and to collect GST and duty on it on it would be so significant that it would end up consuming a significant chunk of the actual revenue collected, so Customs will only collect GST and/or duty where the amount collected exceeds NZ$60, a figure known as a “de minimis”.

In the real world this means a threshold of $400 for most imported goods (excluding clothing and shoes) that are imported into the country. If goods are subject to duty such as shoes or clothes are imported, it means a threshold of $226.

As an example if you import $399 worth of goods (and it’s important to note that shipping costs are included in this amount) the GST amount that would be collected would be $59.85, which is below the de minimus meaning you will not be charged anything to import those goods.

If you import $400 worth of goods, the GST amount to be collected would be $60, which is above the de minimis, meaning you will need to pay GST on those goods. To cover the costs of processing and border security, processing fees of $55.71 will also be charged – made up on an an Import Entry Transaction Fee (IETF) of NZ$29.26 and an MPI biosecurity system entry levy of $26.45. This means a total of $515.71 on your $400 item.

For goods where duty can apply such as clothing and shoes, a threshold of $226 applies – $226 worth of goods would mean GST of $37.29 and duty of $22.60 for a total of $59.89 so you would pay nothing.

If you imported $227 worth of clothing or shoes you would be subject to GST of $37.46, duty of $22.70, and then IETF and MPI fees of $55.71 meaning you would need to pay a total of $342.87.

For many years retailers in New Zealand have lobbied the Government of the day claiming the current system is unfair, and that allowing people to import goods from overseas without paying GST and/or duty that was unfair and created an uneven polaying field. As online shopping has grown, particularly with goods purchased from overseas, GST revenue has been lost as products that would have been purchased locally have been purchased overseas GST free.

In 2015 the Government announced that GST would be applied to all digital services consumed in New Zealand, meaning that online services such as Netflix (which had previously paid no GST in New Zealand), now had to collect GST on behalf of the IRD. It was also announced that the existing GST thresholds for imported goods were under review with proposals to charge GST on all imports regardless of the value.

Many retailers jumped for joy when Revenue minister Stuart Nash announced in mid 2018 that GST charges would apply to all imported goods from October 1st 2019, and legislation detailing this was introduced into Parliament in December 2018. In June 2019 it was annouced the introduction of the scheme has been delayed until 1st December 2019 to allow overseas retailers time to register with IRD and impliment changes.

Looking at the Customs and IRD websites the changes look pretty simple and clear -

From 1 December 2019 overseas businesses will collect GST on goods valued $1000 or less. Customs will not collect duty or charge the Import Entry Transaction Fee on goods valued $1000 or less unless the goods are part of a large consignment. Processes for collecting GST and duty on consignments valued above $1000 do not change. This does not apply to tobacco and alcohol products - duty and GST are collected regardless of the value 


.. This sounds simple enough.. But the loopholes are glaringly obvious.


When to register for GST

You must register for GST if you carry out a taxable activity and:
•your turnover was $60,000 or more in the last 12 months or will be $60,000 or more in the next 12 months, or
•your prices include GST.

For many large retailers selling into New Zealand such as Amazon the rules are clear – they must register for GST and charge GST on all products they sell and ship to New Zealand based customers, with the exception of GST registered entitles in New Zealand.

Freight forwarding services such as YouShop are also covered by the law, meaning they are required to collect GST for all goods processed by them and forwarded on to customers in New Zealand.

For smaller businesses and retailers however the rules are also clear – if you don’t sell more than NZ$60,000 worth of goods to customers in New Zealand, you are under no obligation to register for GST nor charge GST to New Zealand based customers.

This means people who import goods from smaller retailers or individuals who sell under NZ$60,000 worth of goods into New Zealand will no longer pay any GST and/or duty on these imports providing the total shipment is under NZ$1000.

Customs assumes applicable GST has been paid for any goods with a value of under NZ$1000, and these will not be held or assessed by Customs.

Could goods be held up at the border because of this change?

No. New Zealand consumers will pay any required GST on goods that cost NZ$1,000 or less when they buy them. This means there is no need to hold these parcels at the border until GST is collected. However, all existing border security and biosecurity checks and rules still apply.

The current process for collecting GST and tariff duty at the border on parcels or consignments valued over NZ$1,000 will continue to apply. Customs will not collect GST on parcels or consignments (or low-value goods within a parcel or consignment) valued over NZ$1,000 if they receive evidence that the overseas supplier, marketplace or re-deliverer has already collected GST.


It’s pretty clear these changes are a mixed bag for consumers. Those who import goods from big name retailers or online trading sites such as Amazon or Aliexpress will find their purchases will be charged 15% GST that is collected by the retailer at the time of purchase, regardless of the value of the product(s).

For many consumers however the changes are a huge benefit – for those who import goods (including clothes and shoes) into the country from smaller retailers or wholesalers you will now no longer be charged any duty or GST on your imports providing you stay under the $1000 threshold.

For those who routinely purchased goods over $400 from a small retailer or wholesaler who is not GST registered, you will now pay nothing on your imports, whereas at present you have to pay GST, IETF and biosecurity fee, meaning a significant saving.

Exactly how much government revenue is lost due to the current $60 de minimis is open to debate – estimates put this figure between $80 million and $235 million per year.

Estimating the total foregone revenue on imported low-value goods relies on a number of assumptions, and estimates of the foregone revenue vary.  An estimate by Retail NZ, for example, places the total foregone revenue at $235 million a year.

In the 2015 discussion document, GST: Cross-border services, intangibles and goods, officials estimated the maximum potential foregone GST revenue for low-value imported goods was around $140 million a year.  This estimate was derived from survey and credit card spending information.
 
Since then, further work has been undertaken by officials using a mixed dataset that includes Customs’ sample data of goods coming across the border.  An estimate was calculated based on an assessment of the value of goods under the current de minimis.  This work conservatively estimates that the foregone GST revenue for the 2016 calendar year was around $80 million.  Assuming a foregone revenue growth rate of ten percent a year, the foregone revenue is projected to grow to $127 million by 2021.

Retail NZ pushed heavily for this law change because they saw retailers being on the back foot compared to overseas retailers who could sell products into New Zealand GST free. Hopefully they soon realise that this law change is no silver bullet, and that even with GST added the advantages and cost benefits of buying goods from overseas still exist – sometimes you have to be very careful what you wish for.

The scrapping of IETF and biosecurity fees on all imports under $1000 also means the cost of the processing of all goods now falls solely on those wholesalers and goods who purchase goods over $1000, rather than the current model of cost recovery also charging fees to individuals who imported goods under $1000.

It’s going to be very interesting to see a year from now how much additional revenue is collected by IRD, vs losses in revenue from individuals who will now no longer need to pay GST on their imported goods.



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Steve Biddle
Wellington
New Zealand


I'm an engineer who loves building solutions to solve problems. I'll also a co-founder of the TravelTalk.nz travel site. 


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