The Government is planning to introduce an online "Amazon tax" of 15 per cent GST from October next year.
Offshore online retailers will be required to apply GST (goods and services tax) to all goods under $400.
It tightens up a tax loophole that Kiwi businesses say is costing them millions.
Revenue Minister Stuart Nash and Customs Minister Meka Whaitiri announced the move this morning.
Mr Nash says the loophole is giving foreign companies a "tax break."
"Local firms compete on an uneven playing field. Large multinationals sell exactly the same product into our market without collecting GST.
"Small businesses such as bookshops have convincingly argued they are penalised by a system which is badly out of date. It's particularly difficult for very small shops outside the main centres. Some Kiwi firms are doubly disadvantaged, as online retailers who sell into Australia will soon pay GST to the Australian Tax Office," he said."
Whaitiri says it is too expensive for Customs officials to collect GST at the border on goods that cost less than $60.
So the Government is planning to make offshore suppliers collect the tax at the point of sale.
The tax means a retailer selling a t-shirt for $50 would price it at $57.50.
Foreign companies will be asked to register with Inland Revenue will their supply of goods to Kiwis is more than $60,000 in a year.
The Government is asking businesses for feedback on how that would work.
Customs will continue to collect GST at the border on goods valued at more than $400.
The previous National government last year asked officials to begin work on the scheme.