GST on Low-value Imported Goods: a New Dimension for New Zealand


 

Low-value imported goods (“LVIGs”) represent a significant and growing matter for the New Zealand government. Efficient collection of goods and services tax (“GST”) on LVIGs presents new challenges that do not exist within the remote services (“RS”) landscape. The government's proposal contains several key design issues and requires feedback from all affected stakeholders. Consistent agreement to the proposal's final design will ensure the measures are successful following the indicative October 2019 application date.

The New Zealand government recently announced measures that seek to capture GST (15 percent) on LVIGs—goods imported into New Zealand with a value of less than NZ$400 (US$275)—following the success that has been achieved in the collection of GST on RS since October 1, 2016.  Around 17 million consignments under NZ$1,000 entered New Zealand in 2015, with the majority of LVIGs valued at less than NZ$51 (Office of the Minister of Customs, Low-value imported goods: update and next steps (June 2016) at 14 and 35). Although it is difficult to estimate the value of forgone revenue caused by the current treatment of LVIGs (the discussion document notes that in 2015 the maximum potential forgone GST revenue was NZ$140 million a year; the most recent estimate “conservatively” holds that NZ$80 million was forgone in 2016), the volume of this freight is increasing at about 18 percent per year (Inland Revenue, GST on low-value imported goods: An offshore supplier registration system—a government discussion document (May 2018) at 2.8).

Summary of the Proposal 

  • Offshore suppliers will be required to register for GST purposes if their total supplies of goods and services to New Zealand exceed NZ$60,000 a year. Once registered, offshore suppliers will be required to collect and remit GST on supplies of goods to New Zealand consumers if the value of the goods is NZ$400 or less. Tariff duty and cost recovery charges will no longer be collected on goods valued at or below this value.
  • Electronic marketplaces and redeliverers will be required to register, collect, and remit GST if they surpass the registration threshold. The supply of all LVIGs made by offshore suppliers to New Zealand consumers within the electronic marketplace will have GST charged on the supply.
  • A simplified “pay only” registration system is proposed to minimize compliance costs for offshore suppliers.
  • Offshore suppliers will be required to charge GST unless the importer notifies the supplier that they are a GST-registered business by providing their GST registration number or New Zealand Business Number. Goods supplied to GST-registered businesses will be excluded unless the offshore supplier decides to zero-rate the supply (this will allow offshore suppliers to claim costs associated with business-to-business supplies).

 

Key Issues for Consultation

Processes at the Border

Requiring offshore suppliers to collect New Zealand GST will cause new challenges and complexity. The potential complexity is exemplified by the supply of multiple goods with values above and below the NZ$400 threshold within one consignment. GST will be charged by the offshore supplier at the point of sale on goods valued less than NZ$400, and New Zealand Customs will charge GST on goods valued at more than NZ$400 while also asking the importer for proof GST has been paid on any other goods within the consignment.

The Australian rules provide a “reasonable belief” exception for the supply of multiple goods exceeding their threshold (AU$1,000). Offshore suppliers who reasonably believe that multiple goods will be sent together in one consignment can leave the responsibility of GST collection to border officials. The government is seeking feedback if a similar approach should be followed in New Zealand. Clarifying the GST treatment of multiple goods within one consignment in simple and consistent terms will prevent misapplication of the rules by offshore suppliers and customs officials.

Under the proposal, tariff duty and cost-recovery charges will no longer be charged on goods that are valued at or below NZ$400. This welcome move will prevent significant compliance costs from being imposed on offshore suppliers, and the financial implications for government are minimal (59 percent of all goods imported into New Zealand are free from tariff duty—Office of the Minister of Commerce and Consumer Affairs, Import Tariff Levels After 2017 (August 2017). See also, the proportion of tariff duty to core Crown revenue has decreased over time through the negotiation of free trade agreements and New Zealand's membership of the World Trade Organization. The discussion document states that the loss revenue from cost recovery charges will be “small.”).

Making the rules as easy as possible for offshore suppliers has resulted in a high level of voluntary compliance within the RS space, and officials are therefore mindful of this in their approach to LVIGs.

Electronic Marketplaces

The discussion document proposes to extend the electronic marketplace rules currently enacted for RS and would require GST to be charged on all transactions within the marketplace, irrespective of the annual New Zealand turnover of the underlying supplier. Although most major marketplaces and their underlying suppliers are located in offshore jurisdictions, electronic marketplaces based in New Zealand which allow offshore suppliers to operate within the marketplace could become liable for GST on the supply of LVIGs from offshore jurisdictions (depending on the final design of the rules).

Careful attention to the design of the electronic marketplace rules is required. It is expected that officials will consider a number of flexible measures to assist with compliance: for example, allowing New Zealand resident agents to collect GST, or the ability for an electronic marketplace to be exonerated from the rules by the Commissioner when the marketplace cannot reasonably be expected to comply with the requirements of the rules.

It will be important to ensure that unfair burdens are not placed on offshore suppliers, or the operators of electronic marketplaces, in the quest for compliance and efficiency.

Key Issues for Businesses

Offshore suppliers who have made the necessary system changes to fit within the Australian rules should be able to comply easily with the New Zealand rules as they are proposed. One key difference between the two countries' rules is the threshold at which goods are considered as being goods of “low-value.” New Zealand will require GST to be collected by offshore suppliers on goods less than NZ$400, whereas Australia have set their threshold at AU$1,000 (US$740). The inconsistency of the two thresholds may be problematic for offshore suppliers who do not implement the right systems processes to ensure the right threshold is applied to each jurisdiction.

Submissions on the proposal are due on June 29, and draft legislation is likely to be tabled in November 2018. While the final shape of the rules will not be known until that time, core features of the proposal are expected to remain.

Planning Points

As such, businesses will soon need to consider how best to:

 

  • identify supplies of offshore low-value goods sold to New Zealand private consumers and assess pricing changes and how prices should be displayed (taking into account New Zealand fair trading laws);
  • update systems to calculate GST on relevant sales, noting the proposed rules for consignments that contain multiple goods with values above and below the de minimis, and calculating the GST payable. Australia charges GST at a rate of 10 percent, whereas 15 percent is charged in New Zealand;
  • implement processes to differentiate business-to-business from business-to-consumer. For Australian purposes, the supplier must receive confirmation from the customer that the customer is registered for GST, and receive the customer's Australian business number (“ABN”). The supplier can then confirm the authenticity of the ABN through an official online portal. A similar procedure for GST-registered customers in New Zealand is proposed; however, there is no avenue for offshore suppliers to confirm the authenticity of an Inland Revenue Department number.

Issues for the Future

The New Zealand proposal reflects brave new GST policy for indirect tax. It remains early days in the imposition of GST/VAT on LVIGs, with only a handful of countries announcing their intention to collect tax on such goods. New Zealand has proposed to closely follow Australia's approach of an offshore supplier registration model. The joint-compliance initiative between New Zealand and Australia proposed in the government's discussion document aims to capitalize on the similarities between the two jurisdictions' systems and reduce compliance costs faced by offshore suppliers. The European Union intends to extend their one-stop-shop registration system to goods, with the ability for offshore suppliers to designate an EU intermediary to deal with VAT-related compliance. The U.K. can hold operators of electronic marketplaces liable for the VAT that should have been charged by an offshore supplier on goods sold to U.K. based consumers through their marketplace. Notwithstanding jurisdiction-specific nuances, international consistency in the imposition of GST/VAT on LVIGs is most desirable.

 

By Eugen Trombitas, Partner, and Jordan Yates, Associate, at PwC New Zealand.

The authors may be contacted at: eugen.x.trombitas@nz.pwc.com; jordan.r.yates@nz.pwc.com

 

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