PKF Francis Aickin Limited, Far North, New Zealand
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10 May 2018
The IRD has been focusing on ensuring that all taxpayers carry their fair share of GST. With the increasing usage of technology and purchasing goods and services online, NZ based retailers were disadvantaged compared with their overseas competitors, who did not have to charge GST.
Legislation came into effect on 1 October 2016, which meant that offshore sellers of remote services (such as Netflix) were required to register and account for GST if they provided services to NZ consumers totalling $60,000 per year. It was estimated that this would bring in an additional $40 million per year in GST. However, it is reported that more than $162 million has been collected from over 200 registered offshore suppliers.
Currently for imported goods with a value (including duty & freight) in excess of $400 are already picked up by customs and GST charged at the border along with any customs tariffs and border security fees. This will continue. GST has always been payable on low-value goods but Customs has deemed that collection is not cost effective when the amount is $60 or less.
The new proposal covers goods with a value of $NZ400 or less. The registration rules are similar to the ones for services, but may also apply to online market places and re-deliverers as well as individual suppliers. They will need to charge GST if the destination of the goods is a delivery address in New Zealand. If enacted, the proposed effective date for the legislation is 1 October 2019.
Australia has recently enacted similar legislation with an effective date of 1 July 2018. This may affect NZ suppliers who deliver low value goods to Australian consumers.
It is not bad news for all New Zealanders. There are more than 26,000 NZ small retail businesses employing more than 62,000 people. Many are in competition with foreign firms (including large multinationals.) This is an attempt to even the playing field and support NZ business and employment. Revenue and Small Business Minister Stuart Nash stated “Small businesses such as bookshops have convincingly argued they are penalised by a system which is badly out of date. It’s particularly difficult for very small shops outside the main centres. Some Kiwi firms are doubly disadvantaged, as online retailers who sell into Australia will soon pay GST to the Australian Tax Office.” This proposal should help these small businesses to survive.
NZ consumers are likely to see the price of low-value imported goods increase due to the GST. However, this will not always be the case. As there will no longer be any import duty or other import charges on goods less than $400, so prices may drop. For example take a jacket which under the old rules was subject to import duty (because the total duty plus GST exceeded $60). The jacket cost was $300, duty of 10% added $30, plus GST of $49.50 (15% of $330) plus border processing fee of $49.24 gave a total of $428.74. Under the proposed new rules, there would be no duty (because value of the supply less than $400) meaning total cost would be $345 only, being $300 plus 15% GST.
How will it work for a NZ GST registered consumer who is buying a business service or goods from a foreign supplier who is registered for NZ GST? They will be unable to claim input tax but they can advise the overseas supplier that they are GST registered, then the supplies can be zero rated. If a NZ business receives zero rated overseas goods or services that are not going to be used in their GSTable activity, they will be required to do an adjustment in their own GST return.
Revenue officials conservatively estimate that $53 million will be collected in 2019/20, increasing to $78 million in 2020/21 and $87 million in 2021/22. Increased revenue to help meet NZ’s essential services and infrastructure needs.
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