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Why was Trade Me so slow to act on a border tax rort?

Customs has cracked down on a GST rort revealed by the Listener, leaving Trade Me to pay back thousands to customers who had new cameras and smartphones seized. But why was our biggest online marketplace so slow to act?

It was just an everyday transaction for Dr Tarun Ahuja. The Dunedin-based doctor needed a new phone, so, in late June, he went onto Trade Me and ordered a Samsung from reputable-sounding supplier UDS Mart.

The company had a local-looking website, udsmart.co.nz, an Auckland address and thousands of positive customer reviews. The ads clearly stated UDS would handle all taxes and customs clearance processes. The price was good. Ahuja paid up and waited for the phone to arrive. It didn’t. Instead, Ahuja found himself unwittingly caught up in a New Zealand Customs crackdown on a more than two-year-long scam. The rort involved Hong Kong-based companies deliberately undervaluing imported goods so as not to pay GST at the border.

Trade Me had been told about it months before, but chose not to take UDS Mart and other alleged lawbreakers off its platform. It banned UDS Mart only after Customs confiscated packages worth as much as $120,000 from 100 or so UDS Mart customers.

Read more: Border tax rort: Could you be caught by a Customs crackdown?

Even then, Trade Me – bought by British private-equity firm Apax Partners for $2.56 billion in May this year – didn’t tell customers what was happening. Instead, when cameras and smartphones didn’t reach their intended recipients, buyers didn’t know why. In late June, people started contacting UDS Mart and Trade Me, but didn’t get any joy. They talked on message boards, comparing stories, speculating.

A camera body bought from UDS Mart on Trade Me. Photo/Getty Images

Customers back customs

As the dust settled, Customs officers started taking part in comment feeds, explaining they were holding people’s cellphones and camera equipment – and why.

Then a strange thing happened. People started commending Customs, which could have been seen as the baddie – it was, after all, holding the goods. And they started slating Trade Me.

As one thwarted buyer wrote: “We are all ever so grateful to NZ Customs for sorting this mess out … hope it never happens again. Trade Me, please be more vigilant in respect to these sort of traders. I’m certain this dishonest trader could have been noted sooner.”

A camera body for which a buyer paid $3907.95 had a declared value of $243. Photo/Supplied

And another one: “I’ve been asking Trade Me for a refund for more than a week now. Still haven’t heard anything from them except for the auto-generated emails. I’m guessing they are waiting to see if, indeed, UDS has sent my orders. But even so, a simple email from them would be nice to let me know what’s happening rather than just guessing.”

There are plenty more like that. “It’s probably a wake-up call for buyers who thought TM was a safe place to buy a higher value item when that item is coming from overseas,” says a third buyer.

“Trade Me was warned, shown evidence this seller was breaking the law, they were asked to remove them and Trade Me said ‘No, not our problem’,” says another.

But there is some (albeit backhanded) support for the marketplace: “Some of us are saying that Trade Me only did what many buyers did – namely, look at the warning signs and close their eyes – so it’s a bit rich for the buyers to now say it’s all Trade Me’s fault.”

Photographic Imaging Association chairman Gerard Emery. Photo/Tony Nyberg/Listener

A simple scam

Still, the frustrated-with-Trade Me narrative is one that rings true with Gerard Emery. He’s the chairman of the Photographic Imaging Association, and the spokesman for a group of self-appointed local crusaders who have been battling for more than two years to create a level playing field for their own businesses by getting the GST avoiders shut down.

When Emery and his colleagues did their own investigations, starting in 2017, they discovered a relatively simple scam. UDS Mart and others falsified Customs invoices so that an expensive camera, for example, was declared as a cheap bit of photographic equipment. As long as the falsified Customs declaration was for less than the legal GST cut-off of $400, they weren’t asked to pay the tax.

And because Customs can open only a tiny proportion of the millions of parcels it handles, no one found out that what was in the packages and what was on the declarations were quite different things.

The scam was uncovered when Emery and others started buying camera equipment themselves. Their investigations proved what they had only suspected before – UDS Mart was dodging GST. On every package they bought.

A camera body for which a buyer paid $3907.95 had a declared value of $243. Photo/Supplied

But when Emery went to Trade Me to ask for UDS to be delisted, Trade Me refused to act.

“It’s not our place to determine if they should or should not pay duty,” says Trade Me head of marketplace, audience and payments, Stuart McLean. “We run the marketplace. It’s Customs’ job to collect duty.”

McLean’s former colleague Rick Davies previously commented that “Trade Me can’t be judge, jury and executioner” about whether a company is fulfilling its tax obligations.

McLean says after the complaints, Trade Me contacted UDS and asked the Hong Kong company to explain. “We had numerous conversations and we were given a reassurance it would change. We believe we did everything in our power.”

Emery doesn’t agree. He says Trade Me’s rules for sellers on its platform include telling them to “keep it honest and legal” and that “advertised prices must include GST and [sellers] are responsible for [their] taxes”.

He says any seller not paying New Zealand taxes is breaking the law, and that the camera retailers gave Trade Me proof months before the Customs sting that UDS Mart wasn’t paying GST. Trade Me took no action.

Trade Me’s Stuart McLean. Photo/Supplied

Trade me reacts

McLean says his company acts “on what government agencies tell us, not individuals”.

“There were no red flags for us until non-deliveries started to happen, and we acted very quickly after we knew non-deliveries were coming through at an increased rate. We took them down that day.”

Trade Me also banned a company called Blitz Tradings, which launched with suspiciously similar listings soon after UDS Mart disappeared.

McLean says Trade Me will refund anyone who didn’t receive their goods under its buyer-protection policy. In fact, Tarun Ahuja received his money back late last week.

Still, Ahuja says, it took almost three weeks from people first complaining about not receiving their cameras and phones to when Trade Me blocked UDS Mart’s listings. And, all that time, more New Zealanders were buying phones and camera equipment.

“The negative feedback goes through to June 27, but Trade Me allowed the store to function on its platform until July 17.

“It’s hard to think there isn’t something going wrong there.”

Emery says issues with online retailers aren’t anything new; the important thing is for sites such as Trade Me to act quickly. He says international price-comparison site PriceSpy investigated camera listings from two other concerning sites after being sent evidence from New Zealand retailers. One has been removed and the other will be shortly, he says.

“Those guys were great. They came through quickly.”

NZ Customs’ group manager for revenue and assurance, Richard Bargh, says a law change taking effect on December 1 will force marketplaces such as Trade Me to take more responsibility. The so-called “Amazon tax” will make online platforms responsible for collecting GST on all imported goods worth up to $1000. This means Trade Me will need systems in place to keep track of sellers on its platform.

“They won’t be able to allow suppliers under their website to undervalue goods, or they will be at risk of penalties from IRD,” Bargh says.

“For example, a website such as Trade Me will have to do due diligence to know whether someone is a genuine New Zealand supplier or not.

“If they are a NZ company, Trade Me has no responsibility [for GST].

“But if they say they are a New Zealand entity and actually are an offshore supplier, that puts Trade Me into a non-compliant position and there are penalties under the Goods and Services Tax Act.”

NZ Customs’ Richard Bargh. Photo/Supplied

Onus on marketplace

Bargh says it’s always going to be tough to protect against rogue overseas sellers – it’s easy for companies to change their names and addresses. He says Customs’ resources are better spent on data analytics to catch fraudsters, rather than on opening and checking the more than 27 million parcels that came through Customs last year.

Having good information means the public and industry groups such as Emery’s need to keep talking to Customs. But the agency also relies on websites such as Trade Me to be proactive.

“The tactic is to make it difficult for [rogue overseas companies] to sell through normal channels, and websites have an important responsibility in that space. [Sites such as  Trade Me] are seen as reliable and need to maintain their good name.”

Meanwhile, mobile phone-less Ahuja says the past six weeks have been a big waste of time.

The irony, he says, is that if you add $150 of GST and $55 of import duty onto the cost of the phone he bought from UDS Mart, you get a phone costing more than $1200. That’s more expensive than the same model available from some New Zealand retailers.

“If I’d known about the GST problems, I certainly wouldn’t have bought from them,” Ahuja says.

“And in the meantime, I don’t have my cellphone.”

This article was first published in the August 24, 2019 issue of the New Zealand Listener.