On May 12 a new proposed tax on digital products and services by offshore sellers to Australian consumers was announced in the Australian Federal Budget.
What does this mean for the New Zealand Government and for online shopping in New Zealand?
According to PwC Auckland partner Eugen Trombitas, many online purchases from offshore sellers are currently not subject to GST. “If you take goods, customs doesn’t collect duty or GST if the minimum value of tax is under $60,” he says.
“And if you take services, foreign sellers don’t have to account for NZ GST unless they provide services physically in NZ, and of course that meas that many digitally-provided services are not subject to GST.”
Trombitas explains that this is a serious issue and officials have prepared a report for the Minister of Revenue that he is currently considering.
“What does the policy look like and what are the pros and cons?” queries Trombitas.
He is of the opinion that there needs to be a specific solution for goods and another solution for services. The reason for this is that in relation to goods there is something like 12 million low-value parcels under the $400 mark coming into NZ every year. This generates a lot of administration for NZ customs as well as cost. So clearly there is no impetus to bring in a solution that will cost more than the actual tax revenue. “This is a key consideration,” emphasises Trombitas.
Ten options have been bandied around, with all of them having pros and cons and complexity. “Here are a couple of solutions that could be considered further. One is to try and tax the foreign seller, which is a similar thing to services. This would necessitate changes to the import declaration process. Another solution is to carry on with customs collecting GST, but to improve the current system we could think about changing the minimum value of the tax focus to the minimum price of goods. That would be way easier to administer and then we could try and find the same efficiency along the way and think about changing the threshold from $400 to $100. Now on the services side, the international trend in Europe and Asia is to tax foreign sellers, which is working well,” concludesmTrombitas.
“We know Australia is moving in that direction as it said GST would be imposed on digitally-provided services.”