Digital tax, multinational tax crackdown closer

Taxes on services purchased online from offshore sellers looks to have moved a step closer today, with Budget 2015 confirming it is a key focus area on the tax policy work programme.

Low-value goods purchased online will also be looked at.

Last week the Australian Government flagged that it will 'close the GST loophole' and level the playing field by including GST on all digital goods and services from overseas from July 2017.

Australia's 10% tax, dubbed the Netflix tax, will apply to e-books, games, movies, music, consultancy and legal services, among others.

Similar laws exist in other OECD countries.

Eugen Trombitas, PwC partner and GST specialist, says New Zealand can't ignore the issue any longer, with the digital economy having a 'profound' impact on GST.

"Making up around 30% of the Government's tax take, GST is a tax on consumption and when this consumption is taking place in New Zealand, GST should be charged.

"New Zealand retailers and businesses have been insisting on a level playing field and there's a danger we could fall behind the international pace and best practice if nothing is done soon.

Also signalled was a tightening of multinational taxation arrangements, which was quickly applauded by Spark New Zealand managing director, Simon Moutter.

"Multinational taxation arrangements are costing New Zealand hundreds of millions every year in lost taxation revenues, so it's encouraging to see the Government identifying this issue as a key focus for tax policy work," Moutter says.

He says many large multinational companies, especially 'weightless' businesses operating in the digital sector are 'exploiting' the differences between tax jurisdictions to pay minimal tax in many countries where they do business.

"Every tax dollar these digital companies avoid paying in New Zealand has to be made up by New Zealand taxpayers," Moutter notes.