We keep hearing that online shopping is a drain on foreign exchange and the imposition of a seven per cent online tax (in addition to duty and VAT) is meant to curb it. But is it a drain? One can argue that the opposite is true, that online shopping actually saves foreign exchange in some cases. Let’s use buying a television as an example.
About a year ago, I bought a Sony TV from Amazon for US$500 (TT$3,200 then). After paying courier charges, duty and VAT, the total cost was about TT$5,000. At the time, the best local price I could source for the same TV was $8,000.
If I had bought from a local company, they would have had to use foreign exchange (about the same or slightly less than US$500) to acquire the TV. If I paid $8,000, about $5,000 of that would, presumably, remain in T&T. The net “drain” on foreign exchange would be more or less the same as mine.
However, if I had bought from a foreign company (PriceSmart, say), at a minimum, the cost of the TV plus a portion of the profit would be repatriated to the parent company. In that case, the net “drain” on foreign exchange is more than I would have paid Amazon.
Oh, we don’t make Sony televisions here so I wasn’t denying a local manufacturer a sale.
Even if I had paid seven per cent on the US dollar component of my purchase, that is $35 (TT$224 then), it would still have been much cheaper than the local price, so it’s difficult to see how that online tax would dissuade online purchases. If it does come, I hope the seven per cent is levied only on the foreign exchange component and not applied to the total after courier charges, duty and VAT are added! That might really put a dent in online shopping and the minister would then not be able to raise his projected $300 million.
The above argument also highlights the fact that the drain on foreign exchange is greater when we patronise foreign establishments, as opposed to local ones, since much of what we spend there goes back to the parent company. I would wager that the minister could raise much more than $300 million if he were to apply a seven per cent tax on purchases from these companies. I cannot for the life of me understand why anyone would want to buy from foreign fast food outlets. Not only is it not good for our health, it makes us even poorer.
Noel Kalicharan