New Zealanders could soon pay GST on online purchases as small as a song download from iTunes.
It is inevitable that the cost of online shopping will go up as GST is charged to more goods and services, Prime Minister John Key says.
GST is not currently charged on imported digital products such as music and film downloaded from services including iTunes.
Physical goods bought online and worth less than $400 also usually escape GST.
Mr Key today said the continuing growth of online shopping was considerably affecting the Government's tax-take.
"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."
While the GST on some online goods and services would be very small, such as on a $1.29 iTunes song download, it could still be worth pursuing because of the scale of such purchases, Mr Key said.
In a recent speech, Revenue Minister Todd McClay said he had asked officials to look at what other countries are doing to collect more GST.
New Zealand is also involved in efforts by the Organisation for Economic Co-operation and Development (OECD) to develop international rules.
Mr Key said that if the OECD was moving too slowly on the issue New Zealand could go it alone with measures.
However, working with other countries made sense.
One benefit would be to ensure online retailers were compelled to sign-up to a scheme that would require them to collect and pass on GST.
If they did not, they would not have access to shoppers in all OECD countries.
Such a move has long been lobbied for by retailers. They see the current situation as unfair competition - a view Mr Key agreed with.
"What they see, for example, is people coming in and trying a pair of running shoes on in the store.
"Their staff go through all of that, the person goes online, and sometimes even comes back and tells them that they bought it online for less."
Asked about the popularity of such a move, given it would increase the cost of many online purchases, Mr Key said he did not believe most Kiwis were trying to avoid GST when shopping online.
"Most people are realistic enough to say, a lot of jobs are supported by retail in New Zealand, and we just want people to be on a level playing field, and actually people should pay their taxes whether they buy something online or walking through the front door of a store."
Currently Customs stop goods they identify as being worth more than $400 from entering New Zealand, and contact the purchaser to arrange GST payment.
The $400 threshold is derived from the amount Customs says it costs to inspect a package and its documentation at the border, arguing that it makes no fiscal sense to spend more than $1 to collect $1 of GST or duty.
Mr Key said a recent random audit had shown people were declaring goods to be worth less than what they were.
Thresholds differed between countries - Australia's was $1000, while Canada's was $25.
In 2014, Marketview, a Wellington-based analytics firm, estimated that in the past year New Zealanders spent about $1.1 billion on international online purchases - twice as much as four years earlier.
The average value of each purchase was also found to be dropping.
Mr Key said he was not a big online shopper, but his children were.
"They seem to enjoy the fact that not only do they not pay GST, but also they use my credit card to pay for it."
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