7% Tax on Online Purchases: Massive Retrograde Step


The nation’s largest commercial banks have weighed in on Government’s proposed seven per cent tax on online purchases. Their initial opinion is that it is a way to reduce foreign exchange leakage, but they also quickly noted that more detailed discussions were needed. One executive indicated that over the past three years online purchases would have accounted for about 13 per cent of the total usage of the foreign exchange supply — US$1.8 billion. Therefore the impact of this tax would be significant and have far reaching consequences.

Someone needs to wake up the Minister of Finance and let him know that we are in an age of Globalization. The only reason why this has not been immediately implemented is because the local banks will have to actually levy this collection on behalf of the Government. This brings about the first problem:


[1] Extra Management costs for the Banks


Everyone knows that the banks are all about profits and massive profits at that, so this extra management cost will be handed down to the cardholders somewhere along the line. Hence extra hidden burdens will be placed on the consumers.


[2] Easy Hacks and Workarounds


Most online shoppers are fairly tech savvy and will be able to acquire overseas based credit cards that cannot be levied upon by the local banking sector. Also, some couriers already allow their customers who may not possess a Credit Card to pay for their online purchases in TT$. US funds are then wired up to their Miami offices and thereby any tax associated with the use of Credit Card and online transactions is completely by-passed.


[3] A Source for Confusion


Here is the scenario, you are going on a vacation trip with your family, you book a hotel room online with your credit card, so this is an online transaction. When you arrive at the hotel at the check-in counter you hand them your card to swipe it. On your statement the same vendor shows up for both transactions. However only a portion was done online. How will the bank be able to discern which portion of the transaction was done online?


In general, how will the banks be able to discriminate between online transactions and transactions created when someone is traveling abroad?


Then there is the issue of refunds, will the banks be able to ensure that this tax is promptly refunded if you decide to cancel an online transaction? Or will you then have to fill out some form and wait for years to get your tax refund back?


online refund


[4] Small Businesses to feel the pinch yet again


Many small businesses as well as larger firms when in a pinch for forex, resort to using Credit Cards for making overseas purchases. This extra 7% will make them less competitive and along with the hikes in Business Levy and Green Fund will make their survival so much more difficult. Price increases will then yet again be passed unto the consumer and cause more inflation.


[5] A double dip by the Government


While the Government boasted that they raised the ceiling of personal non-taxable income from $60,000 to $72,000 per year. Your disposable income is subjected to yet another tax. In the event that you order something online – depending on the item, you will now have to pay to the government: [a] Customs Duties [b] VAT and [c] Online Shopping Tax.

[6] Will encourage more overseas accounts and capital flight


As persons attempt to get around this tax, more US-based accounts will have to be created. In order to maintain these accounts, funds will have to be transferred overseas to them. So while the emphasis is to prevent a run on foreign exchange reserves, this move will cause faster net outflows as more overseas accounts are maintained and buffers are established.


[7] Will hinder the development of Local Online E-tailers
Due to certain constraints, local e-tailers must trade in US$, therefore this tax can serve to hinder the development of local modern business models in this global age.




The announcement of the tax on Friday 8 April has generated some heated debate from the population. Most use online shopping to escape the higher cost of goods on the local market, as well as to obtain items that are not available locally. It is based on this reaction that, Finance Minister Colm Imbert attempted to bring calm, by indicating that, “Some of you will get a ‘bligh’.” It was further indicated that online purchases of a small value will not be subject to the seven per cent tax. However the threshold level at which an item will attract the tax is yet to be determined. But he concluded this decision should “ease the stress”.

It is my opinion that this whole thing is a bad idea, and it can actually back-fire on the Government.

Posted by: Trini 2D Bone on