PM sees Govt moving to charging GST on services delivered online from overseas firms such as Apple and Netflix

PM sees Govt moving to charging GST on services delivered online from overseas firms such as Apple and Netflix

By Bernard Hickey

Prime Minister John Key has foreshadowed the release tomorrow morning of a discussion paper from Revenue Minster Todd McClay that will propose the imposition of GST of digital services bought online, including from the likes of Apple, Netflix, Google and Amazon.

Key told his weekly post-cabinet news that Government was also looking at lowering the current GST-free threshold of NZ$400 for physical products imported through overseas websites, although he said this would be more difficult and take longer to implement. He suggested in the news conference the GST for online services could be in place by Christmas, but this was later down-played by officials.

Key denied these measures to tax such physical and digital imports was a new tax, saying it simply created a level playing field with 'bricks and mortar' stores and service providers based in New Zealand who had to collect GST and pass it on to the IRD.

He said the increasing prevalence of people buying goods online and from offshore websites had created a 'hole' in the Government's revenues of around NZ$180 million per year. He said imposing GST on imported services used in New Zealand could also raise hundreds of millions of dollars for the Government.

A spokeswoman for McClay said the discussion document would be released at 10 am tomorrow.

Key said legislation to make companies such as Apple and Netflix register for GST purposes and start collecting GST revenues to pass onto the IRD could be introduced later this year. He said the measures to lower the threshold for physical imports bought online could take longer and was likely to be more complicated.

He said the IRD's officials were working to harmonise their moves with those in Australia, which is looking to reduce its GST-free threshold from A$1,000.

Key said New Zealand's threshold of NZ$400 was among the highest in the world, although it was unlikely to be lowered to zero. He pointed to thresholds of C$20 in Canada and even lower than that in Europe.

"That's the more complicated nut to crack and I anticipate that cabinet will get a series of recommendations in the latter part of this year, sort of by the end of October, and then we will be able to report back on our steps there. So the first step: services. Second step: online purchases," Key said.

"I think you should have to pay (tax) for online services. And, in fact, there are about 12 jurisdictions in the world that do that, including Europe, so it's a well-trodden path and it actually works," Key said.

"And, in principle, if you buy, for instance, Sky TV and you pay for that in New Zealand, you pay GST for the Sky services you get. Why shouldn't you pay if you get Netflix from overseas?," he said.

Key said the Government would be able to move relatively quickly to tax services online because it had been done overseas.

"There's a consultation period where the discussion document will be put out into the public domain, and then on the basis that we decide to move forward, which would be the government's hope, then it becomes the implementation of that. So that is, arguably, a lot easier because it's really about registration of some of those big companies. So that' s an easier process," he said.

"I think in terms of the purchase of goods that come across the border, that is more challenging. We are working on that and I reckon we will get there, but it's just going to take a little bit more time," he said.

Asked if the services GST could be in place by Christmas, he said: "Could be, yep. I think that's possible. Certainly it will take a month or six weeks or so for them to report back so that puts you into the end of September. It might be a little optimistic by Christmas."

Key downplayed suggestions the GST-free threshold could be lowered from NZ$400 to zero.

"By definition, if you went from $400 to zero then everything would be caught. But the problem is, the government is trying to balance up the need to be both fair to existing retailers who have bricks and mortar on the ground, the fact that we have got a hole in our revenue accounts that emerging because more and more purchases are online, but also reflecting the fact that consumers for convenience, not necessarily for price, want to purchase online," he said.

"So if we make the de minimis zero, everything gets held up at the border and that's a massive inconvenience to consumers. There's got to be an easier way through that. I think there is an easier way but we just have to work our way through it."

(Updated with more comments.)

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Nats = low tax government?
.
I think they missed the memo

haha, saying that they wouldn't raise GST, then raising it. Maybe they should have started with this, looking where GST wasn't and should/could be applied before raising it. Surprised after the Kiwisaver kick start kick to touch with no warning, that they didn't just try and bang this one through. Can't wait to see the next fiscal rabbit to be pulled out the hat....

Low tax = as broad a tax base as possible not just some paying it while others paying nothing.

Like the SIX BILLION EACH YEAR the wealthy of NZ escape paying. That could sure beef up all the common good projects this govt just cannot fund for sure. But can't tax the mates, can we?

The so-called wealthy don't "escape" paying as you suggest .

They simply structure their affairs to minimise the tax they need to pay .There is neither anything illegal or morally wrong with that . Its what any rational person would do

I turn of the lights and appliances in rooms at home when no -one is in them , so as to not waste electricity and minimise our power bill That's a perfectly rational thing to do .

To me, avoiding tax due by going through the offshore tax havens is not simply structuring affairs, it is blatant disloyality to the country and its peoples who are providing the infrastructure and services that make those profits possible. More like traitorous parasites.

I think you and I have a different definition of 'moral'

16
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He said the increasing prevalence of people buying goods online and from offshore websites had created a 'hole' in the Government's revenues of around NZ$180 million per year.

He should be looking for ways to increase citizen's income, rather than seeking to extend regressive tax collection from diminished collective earnings. Especially from those who endure below market risk adjusted returns financing bank liabilities expressly tailored to subsidise the over indebted.

Agreed.

And this move will probably contribute to more deflation. Or will it?

Key is farting against thunder and if he tries this he may come unstuck.

Just how does he propose to tax the transaction ?

1) How will it be collected , more importantly who will collect it ?( its the seller who collects GST )
2) How will the buyer pay it across to the IRD ?
3) Are customs going to be tasked with collection , because it could be a nightmare for them
4) HOW ON EARTH will he get overseas Companies to comply ?
5) How is the seller going to claim his GST input costs on the transaction if he is not registered for GST in New Zealand ?

Should be relatively simple. Something along the lines of just requiring the banks to collect it on all foreign internet check account (including Pay Pal etc) transactions and provide for people to claim back payments that are exempt (with a service charge).

it will be collected here by the customs broker that clears it, they will not release the goods until the GST the ITF fee and there charges are paid, expect to see a lot of gumpy people lining up at their national MPs office to tell them how stupid the whole thing is.

does he realize the compliance industry and costs he will create by lowering the 400 dollar limit
you now will also have to pay the MPI and custom entry fee of $42.91 as well as set up client codes for everybody that buys offshore
also good luck finding a customs broker that will clear for less than$100 a shipment

An import entry transaction fee (IETF) of NZ$29.26 (GST inclusive) is payable on every import entry clearance and import declaration for goods.

Note: A Ministry for Primary Industries biosecurity system entry levy of NZ$19.98 (GST inclusive) is payable on every entry on which an IETF is payable and is collected by Customs at the same time as the IETF.

Rate: Combined fee is: NZ$49.24 (GST inclusive)

so if it happens add $150 to your purchase + the GST

Just in time for the "free trade" TPPA to block wholesalers from doing any parallel importing.

Simple , a buyers strike for a year would be interesting - if you don't need it don't buy it.

GST income thereafter would be an interesting read.

"He said imposing GST on imported services used in New Zealand could also raise hundreds of millions of dollars for the Government."

Which therefore means _hundreds_of_millions_of_dollars_ removed from the purchasing power of NZ citizens.

While I think the move is needed, and the technology improved to make it more worthwhile than ever before; I do have to question the thinking of deliberately removing that much buying power from everyday New Zealanders' without any tangible specific advantage....

And I also not that the government business does not pay GST/taxes.....so don't get penalised unlike the rest of us.

Sure doesn't sound like a vote winner to me.

What has happened to National's pragmatism?

True , Key has really lost the plot on this one

this will not protect NZ retail. if you have to pay the GST and local charges for customs and clearance rather than keep it under $400 it will be better to buy more at once and go up to the $1000 limit

They should just cut government spending by these hundreds of millions of dollars, but then the same people complaining about the extra costs would then be complaining about the reduced services.

Although I buy lot of different items from overseas, I also realise that its not just the government missing out on its GST etc, but the local businessman who with the reduced sales may eventually have to close his store and then he will have less money to spend in the economy and so the cycle begins. This internal consumption makes up the biggest part of the economy, and as more people purchase from overseas, there will be less internal consumption, less jobs, less income for the government which will have to reduce its expenditure.

We then add on the effects of new technology in old age care, driver less trucks, and where are the jobs of the future?

Well perhaps it isn't a new tax, but it is an extension of an old tax law, I would have thought. GST does stand for Goods and Services Tax after all. Maybe John thinks we don't know what GST stands for?

So he could have said 'it's a new add-on to an existing tax to aid Kiwi producers and service providers.'

12
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I no longer care what John Key says. I can't stand him.

Compliance nightmare + job creation scheme = snail pace international mail system outcome+ no net tax increase. Can see it now.....teams of parcel openers, property going missing, exemption loopholes, mislabelling, disputes over values, Xmas gifts and on it goes. Time to accept that the Internet has changed the game......maybe a property tax?

I thought GST was the liability of the seller not the buyer. If taxing buyers for goods not produced in NZ is being proposed it would seem to be a new tax.

..just a change in threshold levels.

GST is charged on all goods and services done in NZ, and include imported goods and services (And freight). If you export a goods or service you do not charge GST

in NZ yes.
newsflash. Foreign sellers are not under the jurisdiction of New Zealand's sovereign law. (just as NZer's aren't actually in the jurisdiction of foreign governments' legal systems, except by international treatise - which is why the US so badly needs the TPPA shoved through so their US laws can be used on NZ and other citizens and companies)

So the NZ can ask for others to pay the tax, but unless they're doing business in NZ, and for GST the product/service is consumed in NZ, the NZ government can do no more than ask. .... the buyer on the other hand is *is* doing business in NZ, is subject to NZ legislation, and is under jurisdiction told they are supposed to be paying GST, can be held liable by NZ law/IRD.

Is GST being transformed into a cunning way for a govt. to gather information on all their citizens overseas purchases?

at the moment the only information gathered is from to and value. that will change to what you actually brought.
I feel sorry for customs NZ in this as they are going to have to deal with a lot of grumpy people with less staff than they started with when national took office.
customs were pushing for us to match aussie at $1000 to make the whole process faster and easier. makes me wonder which big retailer has got to the nats

Most likely telecom/spark has lobbied the government in order to equalize the streaming tv services playing field.

Quite a few of them, however GST is the least of the issue ie the markup by NZ retailers is so high that for some goods I save 50% and get better and have a bigger choice. So the retailers whinning on the Govn losing GST is a misnomer IMHO, its all about protecting their un-realistic profit margins and using the Govn and NZcustoms to do it free of charge..

50%? How about 90%? But you do say "at least."

well NZ retailers have to pay for NZ wages and taxes and interest and NZ electricity, NZ insurance NZ rates.

by going direct you cut out all those significant costs.

For anything over $1000NZ you get a customer number off NZcustoms and they can then charge GST to your CC as it passes through.

why would they care?

Anyone who thinks that an extra 15% on top of stuff bought online will rescue our retailers is dreaming .

In-store retail is often 100% more expensive than online purchases. I have come across cases where its 200% more expensive in-store

Its easy to understand , apart from retailers rorting us, the online stores don't have to employ expensive shop assistants , they occupy industrial and warehouse buildings at a fraction of retail rents , and there is less handling , merchandising and advertising costs.

What retailers need to understand is in the information age , things have changed ......... forever .

Absolutely spot-on, marine male.

As part of my delving in the data mines, and this is years back, landed prices of outdoor gear passed my purview. A jacket retailing for mid-600's had a duty-paid landed price of around $75. Do the math - even when severely marked down (70% off MRP!!!!) that's - er- $192 less GST of 3/23rds or $25, net $167. Gross margin $92/$75 = 133%.

Hey ho...

It can be entertaining to go to the Katmandu online store (NZ version) and load up a category (for example Men's shoes) then open another web browser and go to the UK version of the store, then compare the price of the exactly the same items made in China and sent to different places . Regular price NZ 299.98 = GBR 79.99. In exchange rate terms GBR 79.99 is around NZ 190 (this was more ridiculous with the January exchange rates when I was buying shoes in London and the NZ dollar was much stronger).

and the government isn't objecting to the dropping dollar because ...... (after chasing parity..)

It might not save our retailers - but no reason that people should be skipping out on the GST in doing so.

So have I, but eventually won't they close, more people become unemployed, less taxes, less money going around in the economy and then we will eventually have to accept less government services?

not less services. No the government will just "get more fair" and start charging taxes on other things (eg existing capital holdings, to make magically money and income sprout from the air)

Sod the retailers. I may buy less online, but won't switch to locals. More than happy to spend the big bucks for something that's actually made here, and for household things like teatowels and soap I go straight to the local cottage industry people, but any big-box retailer who expects me to pay ludicrous mark-ups for some generic dross from China can go pound sand.

If, as the retailers claim, it isn't their fault but the distributors, then they can damn well put on their big boy business pants and re-negotiate.

yes they can try to negotiate "no direct spend". But they will be out Amazon-ed. but that is the New World and the government are going to have to redraw their economic plans from the ground up to make it work.

Why should NZ citizens pay more than everyone else for the same stuff - we earn less but pay more - how is that functional socio-economic model??

It's not going to work. And by fighting for a license to gouge us, they're destroying any residual consumer loyalty that may be hanging on by a thread.

Personally, I'd rather stick needles in my eyes than subscribe to Sky. I already have thousands of books and more free podcasts than I can keep up with. Who needs 'em?

Books: I can pay 25 cents to 8 dollars for an ebook delivered immediately anytime I'm near a wifi.

or pay $35 - $50 for the same book in a local bookstore, when they're open, if they have it, if I go and find it.

Fishpond falls between the two, if I want hardcopy badly enough.

And podcasts/youtube educationals can be done by almost anyone. Don't need a publishing house or convince editors to carry your story, don't need to be certified expert or big name/brand. So much quality volume, so little entry cost. It's an entirely different world.

And electronically, there are more public domain freebies available from Project Gutenberg than you could read in a lifetime. I have at least 150 in my reader waiting for me to get to them. For free public domain audiobooks, there's Librivox.

I wouldn't have a giant meltdown over paying GST on electronic downloads, but I would be extra-annoyed if Audible etc decided that tax issues made it too much hassle to sell to NZers.

Podcast-wise, Welcome to Night Vale is a great example of something original and intriguing, huge international success, without the involvement of a Warners or Disney, and only word-of-mouth advertising. Distributed free, but I kicked in a donation of $20 because they earned it.

Wonder what their thinking is on that business model? The podcast or other digital content which is distributed free, with the option of a voluntary donation? Have they thought about it at all?

Has he made any noise about multi-national corporates paying tax before they export their profits? I note that the ANZ is reporting it's NZ net profit for nine months is at $1.3 billion. This is net - how much tax have they paid? i'll bet it isn't at the 30% making their gross for tax at $1.86 billion?

In this internet age GST is no longer fit for purpose, and should be replaced by a simple, all encompassing, tiny % financial transactions tax, there job done.

..how do you apply a transactions tax to a crytocurrency such as bitcoin? You said it, we are in the internet age. Time to introduce an asset test - stop focusing on income, extend ot to the asset bankers.

don't be an idiot

how do you think the "asset bankers" are going to pay for the taxes you want to put against them.
do you have assets, is that why you think you shouldn't pay for your consumption?

How do you get the crytocurrency in the first place?

Few years ago my super ultra reliable french car needed a new ABS module. Friendly people at Continental Cars quoted $1850 for the unit (will take 2 weeks to arrive from France). I jumped on Ebay that night and got one from a UK dealer for less than $500 plus $60 for express freight - arrived within a week. Even at 15% GST, still less than half of NZ price.

We are forgetting that the price of anything we buy is GST INCLUSIVE unless otherwise stated .

This means the vendor has to file a GST return .

This may be simplistic and a technical issue , but God only knows how they are going to get around that one

Just wait until the Chinese levy 15% ADDITIONAL tax on our milk powder , and force Fonterra to register in China for GST .

Key really has not thought this through .

We forget too easily that our milk exports are GST exempt , the dairy giants claim GST on the inputs and then pay nothing on the exports of the milk product .

So the dairy firms get a 15% subsidy, compliments of the NZ taxpayer

they're exporting. GST is charged on _consumption_
dairy farmers have to pay the GST on milk sales to Fonterra, and claim GST on purchases (are wages and interest a large expense to dairy farmers? )

All exporters would get the GST exemption Boatman - it's not exclusive to Fonterra..

I hope, but have no real expectation, that they'll learn from the horrendous clusterfeck that was the implementation of VAT on digital products in the EU, and put a sensible threshold in place, so that a business has to be at a certain turnover before they're liable for collecting tax. The implementation completely overlooked the existence of thousands of small cottage industry people selling things like PDF knitting patterns at $5 each, and made it impossible for some of them to continue in business unless they refused to sell within the EU. Numerous small-scale European designers who were selling things like that as a hobby sideline just threw up their hands because it was impossible to deal with, and either took their product off the market or offered it for free.

Big operations like Amazon can gear up to deal with this internationally, but small businesses and platforms can't. This will deliver monopolies to major corporations by kneecapping the competition on compliance costs, which is no doubt a feature rather than a bug.

But the pressure for this is coming from the likes of Sky, and their sour grapes at losing the license to screw over their customers with impunity, so what do they care about collateral damage to small businesspeople in unrelated industries?