Tax net tightens on offshore purchases, with video, music first in government's GST sights
The government has introduced a bill to tax online services purchased overseas, including videos, music, software and e-books, the first step in efforts to capture an estimated $180 million of goods and services tax lost when Kiwis shop outside New Zealand.
The Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill will apply GST to cross-border "remote" services and intangibles supplied by offshore suppliers to New Zealand resident consumers, Revenue Minister Todd McClay said.
The government plans to net the unpaid tax by requiring offshore suppliers to register and return GST if their sales exceed $60,000 in any 12 month period. The new rules would come into force on October 1, 2016, almost a year ahead of a similar move in Australia taking effect in July 2017.
"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," McClay said.
Kiwis have flocked to e-commerce, attracted by prices that are typically well below those available from bricks and mortar stores at home. Taxing services is likely to be followed by increased scrutiny of goods bought overseas, with Customs Minister Nicky Wagner separately announcing a review of options to streamline the collection of duty on low-value physical imports. In both cases, the ministers emphasise the importance of creating a level playing field.
"The fact that GST isn't charged on low-value imported goods that are below Customs' de minimus threshold is also of concern to the government," McClay said. "The growing volume of imported goods means the amount of foregone GST is continuing to increase and raises concerns for domestic suppliers. This should be seen as a two-step process to also focus on low value goods."
Tax foregone is estimated to be growing at 10% a year, with goods purchased overseas accounting for about $140 million, and services $40 million.
Under the law change, offshore retailers will have to determine if a customer is a New Zealand resident. According to a Q&A released with McClay's statement, they will do this on the basis of "two non-conflicting pieces of commercially available evidence," such as a billing address and the country code of their mobile phone SIM card.