Weighing in on Online Tax Levy

unfair Screenshot 2016-05-15 20.29.51The recent mid year 2016 budget review by the Minister of Finance indicated that by September 2016, all nationals of Trinidad and Tobago (T&T),purchasing goods and services via online transactions with retail companies overseas, will be subjected to a 7% online tax levy. The Hon. Minister Colm Imbert, suggested that the tax levy is necessary to reduce the foreign exchange leakage; and should assist local companies with improving their competitive advantage.

As noble as this sounds , how would this tax levy be applied?  The Minister of Finance in his contribution stated that New Zealand has an online tax levy in place –  a possible model for T&T.

Let me digress a little to give clarity on the terminology used in the budget review statement so that one can relate to my perspectives later in this article. According to http://businessdictionary.com, “The most basic products of an economic system that consist of tangible consumable items and tasks performed by individuals. Many business portfolios consist of a mix of goods and services that they offer to potential consumers via a sales force”,   a common definition for Goods and Services. A retail company is defined as “businesses or persons that sells goods to the consumer”.Finally, the definition for online shopping is “a form of electronic commerce (Business to Consumer) which allow consumers to directly buy goods and services from a retailer over the internet using a web browser”.

The online retail mix offered to an e-consumer as explained by researcher Neilsen, is also thought provoking, as consumers who purchase online want ease of shopping, convenience, price and range of product offerings.

Neilson suggests that the class of the product mix is much broader for e-consumers. There is a range of product mix of tangible goods such a:Clothing/Shoes/Accessories, Books/Magazines,Music CD/Videos/DVDs,Health and Beauty,Toys,Sports Equipment, Hardware and Garden Supplies,Food,Furniture and Housewares,Electrical and Electronic Items,Recreational Goods,Parts,Vehicles.

Many contributions have been written by analysts about the unfairness of the levy on tangible goods, as consumers would be taxed  custom duties, vat,and now a 7% levy on the total tax on the purchase price.

Outside of the physical goods there are also services that is offered to the e-consumer related to: Airline Tickets,Travel Related Services (Taxis, Hotels,Restaurants,Tours),Entertainment (concerts, etc.),Education (online training),Online Support Services,International Consultancy Service Providers (Human Resource Management Teams, etc),Other.

As a practitioner in the tourism industry, we have established relationships with international suppliers for several items that we regularly purchase for the running of our operation. For example, executive room menus, electronic key cards and replacement parts, wall hair dryers and replacement parts, to name a few. These items mentioned are goods, that are tangible, which cannot be obtained in Trinidad. With the sophistication of technology in the world of commerce, we are now able to look at various products and brands via online stores before we make our purchase.

What about intangible purchases, otherwise known as “services”, as it relates to the statement made in the budget? The tourism industry, is service oriented and likewise we also purchase intangible services. For instance, CHTA ,CEDDAT and other caribbean linkages that are affiliated with the THRTA association provide e-training opportunities.  We also pay for electronic system support, software support, and the most common is payment for online sales commission to travel related services (Expedia, Booking,Regatta,Hospitality Supply). Therefore as an e-consumer, hoteliers are purchasing a product mix on goods and services,based on a wider range that are available internationally.

As the Government speaks to controlling foreign exchange leakage, then one must consider InvesTT, property management of government owned / public sector companies such as: Hilton, Hyatt, Magdalena, etc., and its accounting structure. These government investments are all managed by international management companies and international consultants, paid for by taxpayers.  These service companies, external to Trinidad have a foreign franchise fee and human resource management fee for services rendered. Branded properties, are also mandated by contract to comply with international operations whereby  goods are imported into T&T to reinforce brand.

Therefore, it is debatable on how the government intends to apply online tax levy on the tourism industry in an effort to prevent foreign exchange leakage or to improve competitiveness in the marketplace.

Like the banking sector, the tourism industry should seek clarification on how the tax levy will affect the tourism industries financial performance. AMCHAM, in a recent press release offered advise of a de minimis, which i would support for my personal spend as the figure presented was certainly conservative. However, the accommodation sector spend can be about USD $5000.00 for a mix of products and services and this is conservative for small service related operators. What about the other related travel businesses who would import special purpose vehicles over USD$30,000.00 from an online car company?

My view is that it is impossible to use New Zealand’s online tax model to fit T&T, as systems, economic structure, trade relations, availability of goods and services, importation duties, size of population and other variables are by far different. Ideally,  T&T should offer more trading of goods and services internationally to bring in significant foreign exchange, rather than taking this taxation approach, especially as customs and excise duties on goods has had several controversial issues.

Therefore, in my perspective the taxation online levy can have serious long term repercussions on the tourism industry if not thought out, to be properly administrated. Perhaps, an  immediate tax rebate on any online purchases made by an approved operator can be a consideration for the sector. Otherwise, it would be difficult to comprehend the competitive advantages for business operators in the tourism industry.

 

Author: Lisa Shandilya, MBA.(Specialized), CEM., B.Sc., 20 years Practitioner in the Hospitality and Service Sector, Member of THRTA,
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