First phase of GST on e-commerce misses physical goods
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Charging GST on TV, music and online services looks to be much easier than collecting GST on low-value items such as books, shoes and clothes, judging by the government's first discussion document on applying GST to e-commerce purchases from offshore.
Revenue Minister Todd McClay released the document today (See document here), seeking public submissions by September 25, on proposals that would seek to apply GST to approximately $40 million a year of online purchases of digital content such as videos and music from services such as Netflix and iTunes, but indicates that collecting GST on physical goods coming across the border is likely to be more costly and difficult, although other countries are moving in that direction.
Imports of goods and services worth less than $400 are currently exempt from GST but the total cost of GST avoided is estimated to be near $180 million, of which some $140 million is physical goods, with that total estimated to be growing at about 10% annually as consumers become increasingly used to buying goods and services online, irrespective of where they are supplied from.
The proposed new regime for services would include all professional services, such as legal and accounting work but it's proposed that it apply only to private consumers, rather than business-to-business transactions. That's because businesses are able to claim back GST on inputs to their activities and requiring both offshore suppliers and local businesses to record, pay and claim back GST would create expense for all parties with no revenue gain.
However, the proposals were as much about fairness to New Zealand businesses competing with offshore suppliers as revenue, Mr McClay said.
"We recognise that New Zealand suppliers, including retailers, must charge GST on goods and services they supply to their customers, whereas offshore suppliers currently do not."
The proposals would bring New Zealand into line with a growing number of jurisdictions that are seeking to apply GST to offshore e-commerce purchases as governments around the world grapple with the growth not only of tax avoidance by consumers but also by the global suppliers of goods and services. The European Union, Norway, Switzerland, and South Africa already have such systems, and will be followed shortly by Japan, South Korea and Australia.
The discussion document proposes aligning a New Zealand regime closely with Australia's, although it is guarded about the amount of extra revenue such regimes might collect.
"The countries that have implemented a system report some success in collecting the GST/VAT (Value Added Tax)," the paper says.
Where taxing physical goods are concerned, it says "many countries are seeking lower-cost methods of collecting GST/VAT on imported goods. However, no country has yet developed a low-cost alternative to traditional collection systems." In addition, any change would have to take into account the fact that exemption thresholds for low-value goods are a feature of existing international trade obligations to facilitate trade and reduce compliance costs.
For services imports, it proposes making no distinction as to how services are provided. For example, it wouldn't matter whether a legal opinion prepared offshore was emailed or posted, it would still attract GST because it was being received and used by a New Zealand customer.
One major proposal is the creation of a new "place of supply" rule, which would mean that GST was payable wherever a service was said to have been consumed. For example, a New Zealander getting a haircut on holiday would be taxed in the country where they were holidaying, whereas watching a Netflix movie or downloading music from iTunes at home would generate GST to be paid in New Zealand.
One key recommendation is that so-called 'electronic marketplaces' that aggregates goods or services from third parties would be the party required to register for GST. Examples of services covered by such a rule would be app stores, as well as video and music aggregators.
RAW DATA: IRD discussion document on GST and online purchases (See document here)