GST law reform on offshore online purchases
The government has introduced a bill to tax online services purchased overseas, including videos, music, software and e-books, the first step in efforts to capture an estimated $180 million of goods and services tax lost when Kiwis shop outside New Zealand.
This means that the cost of Netflix, iTunes, e-books and other foreign online services could increase by up to 15 per cent next year. Changes in the cost of these products will depend on whether foreign firms such as Apple or Amazon absorb the the tax or pass it on to consumers.
The Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill will apply GST to cross-border “remote” services and intangibles supplied by offshore suppliers to NZ resident consumers, said Revenue Minister Todd McClay.
The government plans to net the unpaid tax by requiring offshore suppliers to register and return GST if their sales exceed $60,000 in any 12 month period. The new rules would come into force on October 1, 2016, almost a year ahead of a similar move in Australia taking effect in July 2017.
“The growth of online digital and overseas services means the volume of services on which GST is not collected is an increasing challenge – for the government in terms of the GST revenue foregone, and as a matter of fairness for NZ suppliers of services and intangibles who must account for GST in their pricing structures,” McClay said.
Kiwis have flocked to e-commerce, attracted by prices that are typically well below those available from bricks and mortar stores at home. Taxing services is likely to be followed by increased scrutiny of goods bought overseas, with Customs Minister, Nicky Wagner, separately announcing a review of options to streamline the collection of duty on low-value physical imports. In both cases, the ministers emphasise the importance of creating a level playing field.
“The fact that GST isn’t charged on low-value imported goods that are below the Customs’ de minimus threshold is also of concern to the government,” McClay said. “The growing volume of imported goods means the amount of foregone GST is continuing to increase and raises concerns for domestic suppliers. This should be seen as a two-step process to also focus on low value goods.”
Tax foregone is estimated to be growing at 10 per cent a year, with goods purchased overseas accounting for about $140 million, and services $40 million.
Under the law change, offshore retailers will have to determine if a customer is a NZ resident. According to a Q&A released with McClay’s statement, they will do this on the basis of “two non-conflicting pieces of commercially available evidence,” such as a billing address and the country code of their mobile phone SIM card.
According to PwC Partner and GST specialist, Eugen Trombitas, the release of the draft law to impose GST on cross-border intangibles and services will bring NZ into line with other OECD nations.
“It demonstrates that our government and policy makers have a desire to keep our GST model current for the digital economy and is also in line with recent OECD guidelines and developments in Australia, Europe, Japan, South Korea and South Africa. The law reform will address matters of sound tax policy, tax leakage (estimated to be at least $40 million per annum and growing) and fairness,” he said.
“Officials have put in significant effort to ensure a ‘best fit’ solution for NZ’s GST system in accordance with international best practice and it’s pleasing to see NZ ultimately decided to apply the new GST rules to business-to-consumer (B2C) transactions and not to business-to-business (B2B) transactions.
“The new GST rules are a significant change and will affect many businesses and consumers. Businesses impacted by the new rules will need to start their planning now.”
According to Booksellers NZ CEO, Lincoln Gould, there is nothing for small businesses and their communities in the bill being introduced.
“Minister McClay talks of fairness and creating a level playing field. The bill goes only halfway to rectifying the GST problem with foreign retailers and benefits only big businesses engaged in selling videos, music and e-books,” he said.
“It does not help small retailers, such as bookshops, that face an ever-increasing uneven playing field, where they have to collect GST for the government on the sale of small value goods, while the offshore online retailer does not.
“A discussion paper on applying GST to online purchases of small value goods was expected this month.
“Now the Minister has said this discussion paper will not come out until April next year from the Customs department.
“This will mean that Amazon, for instance, will be required to collect GST on the sale of an e-book, or an audio book to a New Zealand purchaser, but not on the sale of a printed book.
“It is unclear why Customs takes any longer to rectify this issue than the Department of Inland Revenue, given the years that it has been on the table. And the recently released guidelines on the issue from the OECD pointed a way forward, which other countries have followed already.”
InternetNZ has analysed the announcement regarding goods and services tax treatment for online purchases, and found it to be a mixed bag for NZ’s internet users.
“These measures will see New Zealanders paying GST on many of their transactions online,” said Jordan Carter, InternetNZ’s CEO.
InternetNZ does not have a view on the policy to introduce GST for online transactions. It does believe that if this is done, it must be done in a manner that does not stifle online commerce and that is reasonably workable. InternetNZ included this advice in a submission on these proposals earlier this year.
One of the big challenges is how retailers are expected to know that a customer is from NZ, said Carter.
“Internet protocol (IP) address information is one manner that a retailer may try to use.
“We strongly advised the government that using IP addresses as a means for implementing these measures is technically and logically flawed.
“It’s like determining where someone lives based on their city, and sometimes even less accurate than that.”
However, InternetNZ is pleased that the government has decided on an appropriate threshold for overseas internet-based retailers before GST collection is required.
“We look forward to the select committee process to help improve these proposals and ensure they do not have a chilling effect on New Zealanders’ ability to shop online.”
GST: Cross-border services, intangibles and goods is a link to its submission on online GST.
Nerine Zoio: firstname.lastname@example.org
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