New digital purchase GST law passed

The tax will affect cross-border digital product purchases – such as music, video and software – by New Zealand residents has been passed by Parliament and will be effective as of October 1.

“Collecting GST from the growing volume of online sales across borders has been an issue of growing concern for some time, so the passing of this legislation marks a very important first step,” revenue minister Michael Woodhouse says.

“Currently New Zealand providers are at an unfair disadvantage because they must apply GST to their services, whereas overseas providers do not. This creates an unfair playing field which this legislation will eliminate.”

“This puts New Zealand in line with international best practice and one step ahead of Australia, where the GST tax will only be implemented from 1 July 2017,” says PwC partner Eugen Trombitas.

“The GST law change is significant because it will address the current tax leakage on services purchased from offshore sellers, and will ensure that our GST legislation is current and relevant in today’s digital marketplace.”

Head of research at the New Zealand Initiative, Eric Crampton says the actual levying of the new fees will be a relatively simply prospect, especially compared to the issues surrounding physical imports.  

“Online GST on services will be much easier to deal with than GST on online foreign imports of goods,” says Crampton. “Trade in services for consumers is smaller than goods imports; getting a few big players to charge GST would handle most of it. And those who don't charge don't find their services held up at the border.”

“The problem seems intractable for imports though. Lowering the threshold will do substantial damage unless someone invents a new and brilliant low cost way of charging GST at the border without simultaneously building large barriers to consumer parallel importation.”

Other measures in the bill include the introduction of a residential land withholding tax and an information exchange of student loan borrower details with Australia.

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