E-shopping levy not a right click

E-shopping does place immediate pressure on the foreign exchange market. According to Imbert, it totals US$900 million out of the US$7.3 billion in foreign exchange transactions annually.

That’s about 12 per cent, a figure not to be sneezed at. But there is no evidence to suggest imposing the levy will ease the problem.

In the first place, it is unclear what impact an additional seven percent charge will have on consumer habits. Some shoppers have already stated they will continue to shop. Who would not? Online merchants offer a better and wider quality of products and at better prices. How was the seven percent quantum determined? Even if some shopping is discouraged, in the long run this may have little impact on foreign exchange pressures. That is because the largest consumers of foreign currency are retailers who import. The biggest users of foreign currency are: PriceSmart, Courts, Smith Robertson and Company, AS Bryden, and Massy Distribution. Cutting off the purchase of commodities on the net will divert shoppers to these retailers. In the process, the small man loses value for money, the big fish gets more profit.

While the State argues the levy could assist local manufacturers and service companies to compete with overseas retailers, this is based on wrong assumptions. Firstly, the quality of local commodities are not comparable. Secondly, the manufacturing sector is not yet developed to sustain such demand.

Thirdly, service standards in local shops remain poor.

Still, we welcome Minister Imbert’s setting of a clear timeline of implemention for the proposal.

The five months until September will be used to iron out details of the levy – such as the threshold to be used to attract a charge, whether intangibles such as services sold by Netflix and iTunes will be included and whether items such as critical medical supplies should be exempted. However, the whole point of serving notice five months in advance is to warn consumers as to what is coming. If we are unclear about the fundamental details of the levy now, a five-month notice, while better than nothing, is ultimately rendered nugatory.

The levy is one tax too many not only because it is ill-suited to the policy aims outlined by the State.

It also results in a bizarre situation where a seven per cent charge is to be imposed on items for which buyers already pay 20 per cent duty and Value Added Tax (VAT). We agree that the country needs some bitter medicine. But with workers on the breadline, land and building taxes coming back, the fuel subsidy stripped down, more taxes on alcohol, tobacco and gaming, the expansion of the VAT regime, freezes on salaries, and backpay deferred, the burden is weighing too heavily on the ordinary man. This levy is gratuitous: it is not a right click.

Instead, the State should focus on combatting the leak of foreign currency via Chinese businesses that have recently set up shop and that are remitting US dollars to mainland China. Also, better revenue collection can be achieved by bolstering agencies such as the Board of Inland Revenue. In a global world, local firms must up their game. Competition from online shopping might be more beneficial than protectionism.

Prime Minister Dr Keith Rowley on Friday called on citizens to tolerate “small pains” as an alternative to big pains down the road.

But with a $15 billion deficit, will taxing e-shoppers stave off the International Monetary Fund?