New Zealand’s GST For Online Retailers Aims to Close ‘Loophole’

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By Peter Hill

New Zealand on May 1 announced a 15 percent goods and services tax on low-value importers, a move meant to level differences between local businesses and online retailers.

The tax would apply starting on Oct. 1, 2019. The matter is one of fairness and is meant to “close a loophole,” according to the government. Smaller retailers, especially those that don’t operate in large malls, may have a hard time competing with tax-advantaged foreign competitors, the government said.

“New Zealand’s GST is a broad-based consumption tax with few exemptions. It is based on the principle that goods and services are subject to GST when they are consumed in New Zealand. All domestic retailers have GST added to the price tag of their goods. The proposed measures will help to restore balance,” the tax authority said.

New Zealand retailers currently compete on an uneven playing field, Meka Whaitiri, Minister of Customs, and Stuart Nash, Minister for Revenue, said in a joint media release May 1 announcing the proposal.

Under New Zealand’s proposed measures, Whaitiri said offshore suppliers will collect GST on low-value goods “at the moment of sale, and in turn, buyers of these goods will no longer pay Customs tariffs or border security and biosecurity fees.”

Offshore retailers would be required to register for the new GST if their total sales to New Zealand consumers exceed NZ$60,000 per year. This is the same turnover threshold that currently applies to domestic businesses and to offshore suppliers of cross-border services into New Zealand.

“Large multinationals sell exactly the same product into our market without collecting GST,” Nash added, and some are doubly disadvantaged, “as online retailers who sell into Australia will soon pay GST to the Australian Tax Office” under similar laws taking effect July 1.

According to Whaitiri, “GST has always been payable on low-value goods but it is not cost effective for Customs to collect it when it is NZ$60 ($42) or less. GST is collected at the border for goods over NZ$400.”

Greg Harford, general manager for public affairs with Retail New Zealand, told Bloomberg Tax in an email May 1 that the government’s proposals “will close a loophole that has been in place for a long time and has been seriously impacting New Zealand retailers.”

It is not “a silver bullet that will remove competitive pressure,” Harford said. “But it will take away a systemic competitive disadvantage.”

Harford said in a news release that New Zealand retailers’ "systemic competitive disadvantage has been caused entirely by government tax policy, and it is fantastic news that the new government is moving to level the playing field. GST is supposed to be a universal tax on consumption in New Zealand.”

Significant Difference?

Paul Smith, partner and New Zealand indirect tax leader for EY in Auckland, doesn’t think the new GST measure will make a significant difference to the competitive pressure currently on domestic New Zealand retailers. He told Bloomberg Tax in an email May 1 “GST is only one of many factors that influence consumer behaviour.”

Smith said in many cases, it will only be a very minor factor, “bearing in mind that latest reports in New Zealand are showing that online shopping with international merchants continues to show significant growth year on year, it is difficult to see that growth disappear because of GST.”

Voluntary Compliance

Though the proposals makes sense from a tax policy perspective, it won’t be perfect because the system will rely on overseas suppliers voluntarily complying, Smith said.

According to the government, when New Zealand began imposing GST on digital services from October 1, 2016, over 200 offshore suppliers registered for GST, and have since paid more than NZ$162 million in tax to New Zealand, well above NZ$40 million per year that was originally estimated.

Smith said the government’s expectation that the compliance rate of overseas suppliers registering for GST under the new measures will be 75 percent, is “ambitious and driven by the success of the GST rules introduced for digital services in 2016.” He noted that “it is possible that compliance rates amongst suppliers of goods may not be as high as compliance rates amongst suppliers of services.”

Harford said Retail NZ thinks the model proposed is sound and that the proposed supplier registration model “is very simple” in terms of compliance requirements. He expects that “the larger online retailers offshore will move to comply readily,” adding “many already have the functionality to collect taxes like GST—they just need to switch it on.”

Public Consultation

The government has released the recommendations made to it by the Tax Working Group, together with a discussion document for public consultation. It has given a deadline of June 29 for submissions on the proposed measures.

To contact the reporter on for this story: Peter Hill in Sydney at correspondents@bloomberglaw.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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