Aussie Treasurer wants Netflix, iTunes to charge GST

A move that will warm Spark's heart. NZ likely to follow.

Aussie consumers will soon be paying 10% more for Netflix and iTunes.

Australian Federal Treasurer Joe Hockey says he has reached an agreement with his state government counterparts to extend GST to cover "intangible media" streaming and download services delivered from offshore.

More broadly, the Treasurer wants to apply GST to any good bought online (currently Australia has a $A1000 threshold).

Hockey says the law change would be easy to administer and raise billions in extra revenue*, but he added, "I see those things as integrity measures for the tax base, not the broadening of the GST or an increase of the GST."

There is still wrangling ahead over how states divvy up the new revenue, but Hockey says he wants to introduce new legislation to facilitate its collection it as soon as possible.

Here, Spark (owner of Lightbox) accused Netflix of structuring its local business to avoid charging GST or paying local taxes.

NBR's take is that all the download and streaming services cost peanuts. The winner — if indeed there is any winner — will be the company that offers the best and broadest content, and the easiest ways to get that content to a regular telly.

Tit-for-tat
Spark has acknowledged those factors, but says price is also a factor in a competitive market and that Netflix has an unfair advantage in not paying GST.

But there's also the question of reciprocity. Moves by NZ to crack-down on the likes of Netflix and Apple could invite tit-for-tat measures against Kiwi companies.

Do we want overseas governments to inflict local sales tax on services offered by Xero, Vend, Orion Health and other cloud software exporters? 

The situation in NZ
The government is again looking at whether GST should be charged on offshore purchases valued at under $400 (the current threshold). The review takes in everything from shoes to virtual goods like iTunes and Netflix. John Key has already said change is likely; it seems Spark will get its wish.

Economist Eric Crampton argues such a move would backfire on the economy and reduce online shopping.

There are also more meat and potato issues. When the issue has previously come up, MasterCard and Visa have said it's not practical or appropriate for credit card companies to play the role of adding GST. And that's really the only vehicle for blanket enforcement, given there are millions of e-tail sites around the world and most neither know nor care about NZ's GST policy.

In terms of the broader question of global tax avoidance and charging local services to offshore subsidiaries in low-tax countries like Ireland (as Netflix, Microsoft, Google, Facebook and many tech companies do), the government is waiting for the result of an OECD investigation, with an eye to ultimately taking part in a multi-country crackdown, Finance Minister Bill English says.

An OECD taskforce began looking at the issue in 2013. The plan is to get anti tax-avoidance measures in place by 2016 or 2017.

Hockey says Australia's tax crackdown will happen in parallel to the OECD/G20 process.

ckeall@nbr.co.nz


* A Treasury white paper says Australia lost $A1 billion last year through GST not being collected on intangible online imports such as iTunes downloads, and $A700 million through GST not being charged on physical imports valued at less than $A1000.

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