HomeNEWSNew Zealand’s GST loophole one step closer to being thwarted

New Zealand’s GST loophole one step closer to being thwarted

Prime Minister John Key says closing the GST loophole is a matter of when, not if, as New Zealand officials are working closely with Australian officials. He says the GST threshold is going to have to come down to ensure there’s an even playing field for businesses.

Key reiterated that there hasn’t been a discussion in cabinet about the GST threshold yet, but there is progress being made.

“We are confident that we are marching towards a potentially successful outcome, from the Government’s point of view, where GST can be applied fairly and evenly whether you buy a purchase online or directly in a store,” Key says.

“But we’re still some way away from that.”

He says the challenge is how to make decreasing the GST threshold workable for all parties concerned.

“The balancing act for us is always between the Government trying to have a level playing field and not [be a] massive inconvenience for the consumer.”

Key says New Zealand’s threshold limit would potentially be the same as Australia, which is looking to decrease its A$1000 limit to A$20, or possibly even to zero.

“I don’t see why there would be a dramatic difference [between the two],” Key says.

The OECD is working to develop a register for multi-national companies such as Apple.

Key says it’d be easy to get a company like Apple to register for GST worldwide, but smaller businesses posed a problem.

“The question is can you also deal, for instance, with a small company which sells T-shirts based in LA. That’s a very different issue,” he says.

Revenue Minister Todd McClay is expected to present a paper to Cabinet this month.

Greg Harford, general manager of public affairs for Retail NZ, says retailers around New Zealand will be welcoming this long-awaited news.

“The current loophole is hurting Kiwi businesses and costing Kiwi jobs – but it’s also fundamentally undermining the integrity of the GST system, and depriving the Government of revenue that it needs to provide services for New Zealanders,” Harford says.

He says Retail NZ estimates the GST loophole is costing the Government between $200 to $500 million in lost revenue this year as Kiwis increasingly embrace online shopping.

“In June, there was a 29 percent increase in spending on foreign websites, so it’s a real problem for the Government as well as retailers, and we are pleased that the issue is being given serious attention.”

PwC partner and GST specialist Eugen Trombitas says it looks likely New Zealand will follow in Australia’s footsteps in taxing digital and physical goods.

This includes Netflix, which will be relief to New-Zealand based streaming services.

Its GST-free status ruffled the feathers of Kiwi companies Lightbox and Neon.

“The Australian proposals give more impetus for our policy makers and NZ Customs to review the position on imported goods,” Trombitas says.

 “It becomes particularly significant and relevant for New Zealand to see if it can achieve consistency with the taxation of imported goods and services.”

Australia started off with a tax on digital goods, dubbed the “Netflix” tax, earlier this year.

However, it is moving to extend this to physical goods.

“Australia has realised that by deciding to tax all digital services, it can’t do a half job with imported goods and lower the threshold from A$1,000 to A$500 as was previously being considered,” Trombitas says.

“The thinking is that it has to have no threshold or a very small one as all imported goods and services should be taxed equally.”

Harford says currently, New Zealand and Australia have the highest tax exemption thresholds in the world and are well out of line with best international practices. 

 Canada has a GST threshold of C$20, Britain has a £15 tax and the United States has no tax threshold at all and subjects all parcels to a tax.

Harford says if Australia can reduce their threshold, there’s no reason why New Zealand can’t follow suit.

Trombitas suggests the Government should change the threshold from minimum taxes to minimum price of goods, as that would be easier to implement.

This could be lowering the GST threshold from $400 to $100, or even lower, or looking at an offshore seller registration that’s similar to digital services.

Retail NZ proposes the threshold should be $25 if the foreign website doesn’t register for GST.

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