Update on GST on low value goods
Tax Alert - July 2016
On 30 June 2016, Minister of Customs, Nicky Wagner issued a press release stating that Customs is continuing to look into different ways of collecting tax effectively for low-value imports by private consumers before proposing to lower the threshold at which it is collected, and that more time is needed before changes are made. At the same time a cabinet paper was released explaining the work and thinking done to date.
Last year Inland Revenue determined that the New Zealand Government was missing out on GST of $140 million per year on goods that are purchased over the internet. It is questionable that a lower “de minimis” limit will increase the GST collected sufficiently enough to cover the related administrative, logistic and workforce costs with the suggested approaches for collecting GST at the border.
In all likelihood, customers will probably keep on shopping online so long as the GST and duties are collected in a straightforward way and it does not interfere with the delivery process. There is a concern about the most appropriate method of collecting the GST and preparatory time will be needed for setting-up collection mechanisms. For this reason the potential reduction of the “de minimis” limit has been postponed till 2018/19 at the earliest so the NZ budget would miss out on some revenue for a few more years.
While the actual “de minimis” limit is set at $60 duty owing (including GST), the paper discusses capping the value of the goods imported GST-free. Considerations have been given to lowering the limit to $200. This can mean that for certain dutiable goods there will not be much difference. For example, a pair of shoes is currently free of duty and GST if the total value is $226 or less.
We strongly suggest that New Zealand look more closely at the Australian approach and require any non-resident supplier that sells more than $60,000 of goods to New Zealand consumers to register for New Zealand GST and collect 15% GST when the order is placed. Without a change, we will have the situation from 1 October 2016 in New Zealand, where the on-line purchase of a physical book will not be subject to GST, but the purchase of an e-book will be subject to GST (even if the same non-resident supplier makes both sales) due to the “Netflix tax” that applies from 1 October on remote services supplied by non-residents to New Zealand resident consumers.
Overall the playing field for local retailers will not be levelled as much or as quickly as they would like it to be. We think the paper does not give enough consideration to the innovative Australian approach of collecting GST on low value imported goods at source, rather than at the border. The Australian approach will require the large non-resident sellers to collect Australian GST from goods sold online to Australian customers, regardless of the value of the goods (from 1 July 2017). Instead NZ cabinet has supported reducing the “de minimis” limit for the low value imported goods.
Tax Alert July 2016 Contents:
- Taxing multinationals – What exactly is New Zealand doing about it?
- New Zealand trust disclosure rules: Not fit for purpose but fixable
- Withholding tax now applies to bright line residential land sales by offshore vendors
- Government sets out framework for taxing inbound investment
- A snapshot of recent developments