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Facebook Tax - the end of free trade?

5 June 2019

New Zealand has long been a leader in the world of free trade.

As a nation, we abolished subsidies for our primary exporters many decades ago and have championed the concept of FTAs with other countries that would see the abolition or significant abatement of tariffs that place imported goods at a disadvantage.

At a time when the USA is reintroducing heavy import tariffs and launching trade wars left, right and centre, wouldn't it be great if we here in NZ could maintain the high-ground and remind the world that free trade is a good thing.

Sadly, it looks as if we're heading down the same path of tariffs that the USA has embarked on.

I'm talking about the proposed "Facebook tax" -- or to give it its proper name, a tariff.

Why is this an import tariff and not a tax? Well let me explain...

Taxes are paid by companies on their profits -- not their revenues.

Indeed, this is the only way that taxes can really be applied, since there are some companies that have huge turnovers but relatively small profits due to the wafer-thin margins involved. A strictly revenue-based tax would put many of these companies out of business and do the markets a disservice by ensuring that only those companies with huge profit margins survived.

Huge profit margins mean the consumer is probably getting a raw deal -- so we don't want that, do we?

No, when you charge a simple percentage of a sum being paid then that is a tariff.

If that charge is applied only to foreign suppliers -- it's an import tariff.

And this is exactly what the NZ government is proposing.

Seriously... we are going to re-introduce import tariffs whilst at the same time claiming we are in favour of "free trade".

Clearly, the tax models of the 20th century are no longer totally "fit for purpose" in an era where the internet has effectively turned our entire planet into a global economic community. It is now just as easy to sell to someone half a world away as it is to sell to your neighbour but our tax laws don't recognise this fact -- hence these lunatic "patches" to try and fix stuff.

I wonder what the NZ government will do when other countries (probably the USA and close friends) start retaliating against the trade-walls we're now erecting.

How can we demand freer access to the markets of other nations when we're planning to impose a tariff on their online companies selling to Kiwi consumers?

I get the impression that the NZ government are out of their depth when it comes to dealing with the challenges that changes in technology have presented them with.

One thing I do know for sure is that these ad-hoc patches to tax laws will ultimately be very counterproductive and serve only to make it harder for Kiwi exporters to gain fair access to the markets we so heavily rely on for our overseas trade. Time for someone to whack our politicians with a clue-stick and make them get some decent advice and help so as to come up with plans that have a chance of working.

To be honest, things have now changed so much (largely due to the effect of the internet) that the entire world needs to rethink the way it taxes companies operating trans-border at a retail level. Without a unified approach to the imposition and collection of such taxes this will become a dog's breakfast that risks "tit-for-tat" tax-based trade-wars.

What do readers think?

Is the proposed Facebook tax (ie: import tariff) a step in the wrong direction?

Given the direction that the USA is headed (with tariffs on Chinese and now Mexican imports), combined with NZ's lust for import tariffs on net-sourced products/services, are we headed for a total collapse of the free-trade initiative?

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