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Online GST: an old tax on new services

Yesterday’s introduction of a taxation bill which proposes to charge GST for online services is a hit to the pocket that won’t be popular with Joe Public, says Dan Lowe, Associate, Tax at Grant Thornton New Zealand.

“But it’s a positive step to ensure New Zealand’s tax base is protected”, says Lowe.

This change was signalled earlier in the year and is already in place in the EU, Norway, Switzerland, South Korea, Japan and South Africa. An estimated $270m NZD is spent annually on online services which means that more than $40m of GST is lost each year. This is expected to increase at a rate of 10% per annum. 

Lowe says,“This legislative change is important for New Zealand. GST is a consumption tax and a significant contributor to our country’s overall tax take.

“This new bill isn’t creating a new tax, it’s simply extending an existing tax to services that didn’t exist when GST was introduced”.

The bill targets non-resident suppliers of remote services. They will be required to register and account for GST on services provided to non-GST registered customers if they are expected to  exceed the GST registration threshold. Remote services include:

  • supplies of digital content such as e-books, movies, TV shows, music and online newspaper subscriptions
  • online supplies of games, apps, software and software maintenance
  • webinars or distance learning courses
  • insurance services
  • gambling services
  • website design or publishing services
  • legal, accounting or consultancy services.

“There will be plenty of non-resident suppliers who won’t bother to comply, or may even choose not to deal with New Zealand customers, but they will be the small players. I also imagine there will be consumers who will try to mask their residency to bypass the GST cost.

“However, large operators already need to deal with this obligation and there’s going to be more uptake in other countries - Australia joins the ranks from 1 July 2017. These providers will collect the majority of the revenue which makes this a worthwhile initiative in New Zealand,” says Lowe.

Further enquiries, please contact:

Dan Lowe            
Associate, Tax            
Grant Thornton New Zealand
T +64 (0)9 308 2531

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