The government is to launch a discussion document on how to target tax offshore online shopping, TV and music.

Prime Minister John Key says that cabinet has not made any decisions yet but that it should be able to move “relatively quickly” to get a system in place for online services pending the outcome of consultation on the discussion document.

The document will be split into two parts, the first covering services such as Apple’s iTunes and Netflix streaming video, and the second on the more complex issue of imported goods.

“The government is foregoing about $180 million in lost tax revenue, which will rise with growing consumer demand for online retailing,” says Key.

“The services component will make up the bulk of the document, and could be in place by the end of the year as it is an easier issue that can be dealt with by registering large overseas companies as New Zealand taxpayers.”

He says the threshold for paying GST on imported goods could fall as low as $20 or zero, similar to what Australia is considering.

However, making the threshold zero will inconvenience many consumers. “There has got to be a better way through this,” Key says.

“The government is trying to balance up the need to be fair to existing retailers with bricks and mortar on the ground and the fact that we’ve got a hole in our revenue accounts emerging with more and more purchases being on line but also reflecting the fact consumers, both for convenience and not necessarily just price, do want to purchase online.”

Local retailers have been struggling to come to grips with the increased demand for online purchases, which avoid GST for all goods services worth less than $400. Government data last week showed a trend of increased sales in non-store retailing, which accounts for local online vendors.

NZ is working with its Australian counterpart in looking at the tax treatment for imported goods and Key says the cabinet will probably get a series of recommendations on the goods aspect of the discussion document by the end of October.

Asked why New Zealanders should pay tax on iTunes songs – which can cost as little as $1.50 – he says the principle should be the same no matter how cheap the product.

“If you go down the road and buy a lolly for 10 cents you pay GST on it,” he says.

According to InternetNZ, as a matter of principle it believes that laws should generally be applied without distinction between online and offline behaviour.

“It doesn’t make sense to give online services a tax advantage. People subscribing to an overseas service should pay the same tax they would if they subscribe to one based in NZ,” says InternetNZ CEO, Jordan Carter.

“The question of goods bought overseas is a little more complicated. As long as government’s proposals don’t create a bureaucratic nightmare at the border, the principle should be the same.

“People buy services and goods offshore because of the vast array of choices they have and the prices they can get. Neither factor will be harmed by equal taxation – no matter where things come from.

“We look forward to looking at the detail presented in the discussion document, and will make a submission to it.”

Retail NZ is cautiously welcoming the release of this document.

The trade association’s Greg Harford says he is pleased the government is dealing with the digital tax issue but is concerned it will shy away from requiring GST to be paid on low-value goods bought overseas.

“From what we understand, there could be a move immediately to put tax on digital services but low-value goods crossing the border might be left until later,” he says.

“From our point of view we don’t see any reason why the government shouldn’t deal with low-value goods at the same time.

“It’s a very similar problem and it can be dealt with in the same way; by requiring the foreign supplier to register for GST and collect tax at the same time the purchase is made just as you do online domestically.”

Harford sayslarge retailers like Amazon already have the functionality to make the move, “but they just need to be told they’ve got to do it”.  On that note, Kiwi shopkeepers are disappointed the GST tax on Netflix and iTunes looks likely to exclude Amazon and other large global retailers for now.

Harford concludes by explaining that the relatively low number of smaller foreign firms selling into NZ could pay their GST at the border.