What the ‘Amazon tax’ really means for online shopping

The so-called ‘Amazon tax’ is coming to New Zealand, but whacking consumers with 15 percent GST isn’t going to alter the fact that overseas online retailers will still offer cheaper deals and more choice.

From 1 October 2019, the Government will apply GST to imported goods valued at under $400, closing a tax loophole online shoppers have enjoyed for the best part of two decades. It will require overseas online retailers with revenue of $60,000 or more to register with the New Zealand Government and begin adding GST when you put an item in their online shopping basket for purchase.

The tax system has been in place for online music and video streaming and software download services since 2016 and proven to be a nice earner for the Government, netting $162 million, much more than the $40 million a year that was initially estimated.

That’s not surprising – all those Apple Music and Netflix subscriptions really add up. The streaming tax didn’t cause much of an uproar, because paying an extra dollar a month for Netflix was still better than making do with the wasteland of local free to air TV and Sky’s overpriced packages.

Lost opportunity

So it will be with physical goods like clothing and electronics – popular categories with online shoppers, as well as books, LP records and DVDs. Take, for instance, the great book I’m currently consuming, Island of the Lost, a grim tale about some unfortunate sailors who were shipwrecked on Auckland Island, far south of New Zealand, in 1864.

I’ve actually been listening to the book as part of my Amazon Audible monthly audiobook subscription (US$15, NZ$21), which I don’t appear to pay GST on. But had I chosen to buy the paperback version, I would have had a few local choices – Mightyape.co.nz for $46,99 (hurry, only 1 left!), or Fishpond.co.nz for $36.81 (save 34%!) including shipping. It isn’t even listed on the websites of Whitcoulls or Unity Books, but when it is in store, it will likely cost around $45.

On Amazon, the same paperback sells for $20. But with shipping added ($29.60), it will cost me $49.60. On Book Depository, which ironically, is owned by Amazon, the paperback will cost me $30.58 – with free shipping.

Even if I was paying GST on that Book Depository purchase, I could still buy it and have it shipped here for less than Fishpond will sell it to me.

And that is why New Zealand’s bricks and mortar and online retailers will see little in the way of relief from the pressures of competing with the online retailing giants, when GST is applied to offshore purchases. The real advantage will be to New Zealand retailers selling into Australia – from mid-year they’ll have to collect tax on behalf of the Australian Tax Office, so a reciprocal arrangement will level the playing field.

Waiting for Prime time

Often it is free or discounted shipping that significantly tips the balance in the favour of the overseas crowd. When you consider that Amazon has over 100 million paying members of its Amazon Prime programme, which offers free two-day shipping for an annual fee of US$99, you can see how powerful that is. Prime members are more than twice as likely to actually buy something, as other shoppers browsing the Amazon store.

Prime has been off-limits to New Zealand and Australia, but that could change later this year with Amazon rumoured to be introducing Prime membership in Australia. It is not a big stretch to extend that to New Zealand, sending plane loads of goods across the Tasman from the big fulfilment centre it has built south of Melbourne.

No one wants global behemoths hollowing out our retail sector in the way that Google and Facebook have vacuumed up advertising dollars, leaving the local media financially crippled.

But New Zealand retail really needs to up its game in the face of this threat. I’m not loyal to local retailers, because shopping with most of them is like being shipwrecked on Auckland Island – a dismal experience.

Stock inventory is usually thin – “Oh, that one’s out of stock, but you could go to the Upper Hutt store!” The selection is limited, customer service is more often than not incredibly poor, and after all of that, you aren’t getting a great deal.

I’m all for buying locally and rewarding the ones who go the extra mile, like the aforementioned Unity Books, which is a tower of support of New Zealand literature. But the big box retailers? Give me Amazon’s recommendation engine and sharp discounts any day. I’ll wait for it to be shipped, thanks very much. I haven’t even mentioned Alibaba.com yet – that’s the next e-tailing giant eyeing up Australasia.

If anything, the Government should go all the way, and get offshore e-tailers to collect GST on items that cost more than $400 as well. If you’ve ever suffered the hassle and expense of having a package held up by Customs until you’ve paid the tax and fees, you’ll agree with that.

The Government expects to collect $53 million in taxes in 2019/20 and $87 million in 2021/22 with the GST change, which it is seeking feedback on over the coming months. Again, it is probably underestimating the impact, because it won’t stop us shopping offshore to any significant degree.

It is a small win for retailers, but if they are smart, they’ll use it as an opportunity to offer us a better shopping experience. They’ll need to or they won’t know what has hit them when the tag team of Amazon and Alibaba spot New Zealand on their radar.

This article originally appeared on Noted.co.nz