GST on online services - levelling the playing field

  • Todd McClay

Revenue Minister Todd McClay says measures proposed in a tax bill introduced today are about fairness and equity.

“It is about creating a level playing field for collecting GST and putting New Zealand businesses and jobs ahead of the interests of overseas suppliers”, says Mr McClay.

These measures are an important first step in the Government’s efforts to deal with increasing volumes of online services and other intangibles purchased from overseas suppliers that should, under New Zealand’s tax rules, be subject to GST.

“GST should apply to all consumption that occurs in New Zealand.  This is what makes our GST system fair, efficient and simple,” says Mr McClay.

“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 New Zealand suppliers of services and intangibles who must account for GST in their pricing structures.”

Mr McClay says the proposed measures will apply GST to cross-border “remote” services and intangibles supplied by offshore suppliers (including e-books, music, videos, and software purchased from offshore websites) to New Zealand-resident consumers, by requiring the offshore supplier to register and return GST on these supplies.  

“To reduce compliance costs, offshore suppliers will not be required to return GST on supplies to New Zealand-registered businesses, nor will they be required to provide tax invoices.”

Non-resident suppliers will be required to register and return GST when their supplies of remote services to New Zealand residents exceed NZD$60,000 in a 12 month period.

Mr McClay says the proposed measures are intended to maintain the broad base of New Zealand’s GST system and to create a level playing field between domestic and overseas suppliers of online services and intangibles.

“The proposed changes would broadly follow the OECD’s recommended guidelines, as well as the rules that apply in other jurisdictions, such as Member States of the European Union, Norway, South Korea, Japan, Switzerland and South Africa,” says Mr McClay.

Australia has announced plans to introduce similar rules that will apply from 1 July 2017.

Mr McClay says that while the measures in the bill relate to online services, the fact that GST is not charged on low-value imported goods that are below the Customs’ de minimus threshold is also of concern to the Government.  

“The growing volume of imported goods means the amount of foregone GST is continuing to increase and raises concerns for domestic suppliers,” he says.

This should be seen as a two-step process to also focus on low value goods.

The Government realises this is an important issue for New Zealand retailers, however we are not willing to move unreasonable cost or inconvenience on to consumers. For this reason Customs has been asked to work through a number of logistical issues with stakeholders.

“The New Zealand Customs Service is expected to release a consultation document in April 2016 that will seek public feedback on the practical implications of options to streamline the collection of duty, including GST, on low-value imported goods.

“In the meantime, the measures proposed in the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill are about providing a robust, simple and easily administered set of rules for overseas suppliers of services to New Zealanders.”

The proposed new rules would come into force on 1 October 2016, following enactment of the bill.