Key says that New Zealanders could start facing tax on online purchases as small as music downloads.
“It is not so much a matter of clawing back revenue, but base erosion - the ability to actually lose a huge amount of revenue because people are increasingly going online - is something that eventually not only we need to deal with, but every country,” he says.
The current GST rates have been having dire effects on local businesses, with independent stores being forced to close due to increased online shopping.
Paulsen, 32, opened the Clash Boutique clothing store in Newmarket three years ago.
He wanted to create a stand-alone store which had fashion brands that weren’t readily available in New Zealand.
“The concept was good, but in reality, a lot more people are buying from overseas sites like Asos,” Paulsen says.
“People don’t have to pay the prices us retailers have to pay to get the products over. It led to some pretty hard times and we shut down.”
Paulsen in Clash Boutique's former bricks and mortar store on Broadway, Newmarket
Clash Boutique closed its bricks and mortar shop in February to focus on its online store.
Paulsen says this was the only way the company could survive in the current, online-shopping-mad environment, as ‘showrooming’ was getting to be a big problem.
“There is a very scary thing that’s happening with New Zealand consumers having no hesitation to come in, try things on and write down style codes,” he says.
“They used to ask us to write down style codes for them, then went online to purchase. It’s quite horrendous behaviour. New Zealand retail can’t survive on being a showroom for international websites.”
Paulsen runs a Facebook page called “Support your Streetnz” where he posts about issues facing local retailers.
He says consumers have a negative view of Kiwi retailers because their stock is priced higher than on overseas websites.
“They say they know their right to shop around, Kiwi retailers shouldn’t charge so much money and that retailers have had it sweet for too long,” Paulsen says.
In reality, he says, retailers are just trying to keep their businesses afloat.
“The reason that overseas websites can offer those prices is because they buy in volume with the idea they won’t make as much on each product, but they’ll sell a lot of it,” Paulsen says.
“We don’t buy in that kind of volume. We buy smaller units but still have to pay the same customs and GST. So you can see why the overseas sites can dominate the local ones.”
Retail NZ general manager of public affairs Greg Harford says the lack of GST makes it difficult for New Zealand retailers to compete.
“We know that there are stores that have been closing down because they can’t compete with foreign websites and its costing New Zealanders jobs,” Harford says.
“It’s also depriving the government of tax revenue of around $200 million each year, which could be used for things like health and education. It’s costing all New Zealanders, not just those who shop.”
Under current law, goods purchased on overseas sites that are under $400 generally aren’t charged GST.
This makes New Zealand the second-highest threshold for tax payments in the world, following Australia’s A$1000 threshold.
According to customs, the $400 amount accounts for the cost to inspect packages and their documentation at the border.
Harford says Retail NZ wants the Government to take immediate steps to lower the threshold to around $25 and begin recovering revenue.
Most countries, such as Canada, have a tax threshold of around $25.
The Prime Minister’s announcement comes at a time when US-based online streaming service Netflix says it wouldn’t charge GST to its Kiwi customers because it is “not a local entity.”
This has dealt a blow to its Kiwi competitors, such as Spark’s Lightbox, because as a Kiwi company Lightbox has to pay tax.
Lightbox chief executive Kym Niblock has said Netflix should be required to pay their fair share of tax, just like Lightbox has to.
If Netflix ends up having to pay tax, there’s an argument there for retailers over why overseas retail websites should pay it, too.