Draft law heralds end of GST-free digital goods
The days of GST-free music, games, e-books and software purchased from international websites are coming to an end, with plans to add GST on online services from October 01, 2016.
Revenue Minister Todd McClay says the measures proposed in a tax bill introduced today will create a level playing field for collecting GST and put New Zealand businesses and jobs ahead of the interests of overseas suppliers.
“These measures are an important first step in the Government’s efforts to deal with increasing volumes of onlnie services and other intangibles purchased from overseas suppliers that should, under New Zealand’s tax rules, be subject to GST,” he says.
“The growth of online digital and overseas services means the volme 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,” McClay says.
The proposed measures would apply to cross-boarder ‘remote’ services and intangibles supplied by offshore companies to New Zealand resident consumers, requiring the offshore company to register and return GST when their supplies to New Zealand residents exceeds NZ$60,000 in a 12 month period.
However, to reduce compliance costs, offshore suppliers won’t be required to return GST on supplies to New Zealand registered businesses, or to provide tax invoices.
Tax ‘leakage’ is estimated to be around $40 million a year and growing.
While the proposed changes initially focus on online services and not low value imported goods which don’t have GST on them, McClay warns that it should be seen as ‘a two-step process to also focus on low value goods’.
“The growing volume of imported goods means the amount of foregone GST is continuing to increase and raises concerns for domestic suppliers,” McClay says.
He says 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.
Eugen Trombitas, PwC partner and GST specialist, says the draft law will bring New Zealand 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 also in line with recent OECD guidelines and developments in Australia, Europe, Japan, South Korea and South Africa,” Trombitas says.
He says a wide definition of ‘services’ is proposed, which includes both digital services and more traditional services such as legal and accounting services.
Earlier this year Australia announced similar plans to introduce GST on online purchases.