GST on online purchases

GST charged on online purchases is once more in the spotlight. More and more people are sourcing goods and services online. Often this means purchasing goods from overseas retailers. Needless to say New Zealand retailers find this unfair as imports under NZ$400 generally do not attract GST. Any purchases over this amount are charged GST by NZ Customs at the border.

The government has released a white paper to look at options for collecting GST on online purchases. The paper proposes that overseas suppliers would need to register for GST and return GST when they sell goods or services. You may have read about this proposed Netflix tax in the press.

Most attention in the media has been paid to services, particularly online media such as Netflix. However the white paper encompasses lower value goods as well so the discussion is certainly not limited to the impact on consumers. Businesses may similarly be affected.

Switzerland, Norway, South Africa and South Korea have all imposed similar taxes in recent times. New Zealand’s threshold or de minimis is quite high by world standards. The United Kingdom has a very low exemption of £15 and Canada’s is set at CA$20.

The Australian government has long exempted GST on purchases under AU$1,000 but this looks set to change. The Australian treasurer has suggested that the exemption could be removed entirely as it is in the United States.

The Minister of Revenue, Todd McLay, has in our view rightly pointed out that the sheer volume of goods and services now imported presents are logistical nightmare in terms of levying GST on foreign companies. The risk is that lowering the threshold could give rise to high compliance costs borne by the government. He has even gone as far to suggest that if anyone has any good ideas how to overcome the potential bureaucratic nightmare they should let him know of their proposed solution.

There is no doubt that the rise of online commerce is unstoppable and poses a serious risk especially to bricks and mortar retailers here. This is often cited as the reason why governments want to change the rules although the amount of potential revenue that could be raised by reducing or eliminating the threshold should not be underestimated. The technical term for governments losing out on revenue is referred to as base erosion.

Submissions on the white paper close on 25 September, 2015. We suspect that the outcome will be a reduction in the threshold. You can read more on the discussion document by clicking here.

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