GST loophole closed to offshore companiesCustoms Revenue Small Business
The Government is to close a loophole that gives offshore companies an advantage by not requiring them to collect GST on all goods sold to local consumers.
“Domestic businesses have long called for greater fairness in the treatment of low-value goods from offshore retailers,” says Revenue and Small Business Minister Stuart Nash. “Foreign companies are not required to collect GST on goods under $400. We are now calling for feedback on a system to register these suppliers for GST.”
“There are more than 26,000 small businesses employing more than 62,000 people in the retail sector. Many are in competition with foreign firms who enjoy this 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“Small businesses such as bookshops have convincingly argued they are penalised by a system which is badly out of date.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,” Mr Nash says.
“GST has always been payable on low-value goods but it is not cost effective for Customs to collect it when it is $60 or less,” says Customs Minister Meka Whaitiri.
“GST is collected at the border for goods over $400. We propose making offshore suppliers collect GST on low value goods at the moment of sale, and in turn, buyers of these goods will no longer pay Customs tariffs or border security and biosecurity fees. This will simplify compliance and administration costs at the border. This supports the focus of Customs to make cross-border transactions easier without compromising the need to keep out illicit substances and materials,” says Ms Whaitiri.
“GST has been collected on services and digital products from offshore, such as streamed movies and music, since 2016. This extends that to goods,” says Mr Nash.
“I acknowledge the work of the previous Government which agreed to a GST Discussion Document in July 2017. It forms the basis of the document released today. The former Revenue Minister Judith Collins got the ball rolling on this and it is a pleasure to complete her work. This is an example of an issue with cross party support.
“I also thank the Tax Working Group for its advice to proceed with the proposal. It is consistent with our GST framework, which is broad-based, low-rate, and applies to goods and services traded across borders and consumed here,” Mr Nash says.
Submissions on the proposals are due by 29 June 2018. The discussion document can be found at: http://taxpolicy.ird.govt.nz/
A letter from the Tax Working Group to Ministers is also attached.
Questions and Answers:
- What do other countries do? Australia will have an offshore supplier registration model for collecting GST on low-value imported goods from 1 July 2018. Switzerland will also introduce an offshore supplier registration system for the collection of VAT on low-value goods from 1 January 2019. The EU has announced plans to implement a system akin to an offshore supplier registration model for the collection of VAT by 2021. Other countries such as the United Kingdom and Canada also have a de minimis that is significantly lower than New Zealand’s de minimis – the threshold at which revenue is collected.
- Why is this a priority? It is a question of fairness. Smaller retailers, especially those who operate outside large shopping centres, struggle against foreign competitors who enjoy a tax advantage. New Zealand’s GST is a broad-based consumption tax with few exemptions. It is based on the principle that goods and services are subject to GST when they are consumed in New Zealand. All domestic retailers have GST added to the price tag of their goods. The proposed measures will help to restore balance.
- How much revenue is the proposal expected to collect? The changes would take effect from 1 October 2019. Revenue officials conservatively estimate that $53 million would be collected in 2019/20, increasing to $78 million in 2020/21 and $87 million in 2021/22.
- How will the proposed changes affect consumers? GST will be charged at the point of sale when the value of the goods is $400 or less. In some cases consumers will pay more for their goods but in some cases goods will be cheaper because of the removal of Customs tariffs, border security fees and biosecurity cost recovery charges. There is no change to the tax treatment of goods valued above $400, where the current process for collecting GST and tariff duty at the border will continue.
- Would all offshore businesses selling online to NZ be required to register for GST? Offshore retailers would be required to register and collect GST if their total sales to New Zealand consumers exceed NZ$60,000 per annum. This is the same threshold that applies to domestic businesses and to offshore suppliers of cross-border services.
- How much GST was collected from offshore sellers of services after the law changed on 1 October 2016? Over 200 offshore suppliers registered for GST under the new rules on services. They have returned more than $162 million to New Zealand since 1 October 2016, well above initial estimates of $40 million per annum.