Bit of a GST fizzer…..
We were eagerly awaiting an announcement in yesterday’s Budget 2015 speech on digital services but…. nothing. How many more countries need to take the lead on this before NZ acts?
Posts
Australia jumps ahead of NZ in taxing digital commerce
The Australian Government has released draft legislation proposing to apply GST to downloads and streaming of digital content and other services supplied from offshore to Australian consumers.
This will affect media such as games, movies, e-books and music downloaded over the internet by Australian resident consumers. GST will also apply where an Australian consumer buys other services from offshore such as legal, accounting, architectural, medical or other similar services.
There will be measures to allow the GST to be collected from operators of electronic distribution services in addition to the offshore supplier and a simplified registration regime appears on offer. A lot of the detail will appear later in Regulations.
The States of Australia still need to approve the legislation but it is intended to apply from 1 July 2017.
So Australia gets an early jump on NZ. Bets are on something similar being announced in the NZ Government’s Budget this month.
The practical issues with these measures have been well debated now and no complete or ideal solution has been found. Australia is essentially following the EU lead.
The Australian approach tilts the playing field completely in the opposite direction. At the moment, products sold electronically from offshore (such as e-books) are not taxed as highly as goods purchased online and imported into the country.
When this measure comes into force the preference shifts in favour of goods purchased online. That is because, for goods bought over the internet and imported into Australia there is a threshold of $1,000 below which no tax is payable. There is no suggestion at this stage to apply a similar threshold to imported services. How this impacts consumer choices (such as buying hard copy books over the internet rather than an e-book) remains to be seen.
The thorny issue of the low value import threshold just won’t go away.
Iain
Govt raises stakes for online shoppers
The NZ Prime Minister says his government will go it alone if the OECD doesn’t move quickly enough to impose GST or VAT on online sales.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11418586
The fact the Prime Minister is raising this now is significant. The OECD is working on a multilateral solution for governments losing tax revenue from digital commerce. The next reporting deadline is towards the end of 2015. The question is, will Mr Key wait that long? He doesn’t say.
Other countries have already moved on this. The EC requires certain overseas companies to register and collect VAT on products sold to consumers in the EC. South Africa has done the same and there are others.
The likely multilateral solution will focus on enforcement in my view. Legislating to require non-resident companies to register for GST here is an important first step and most companies will comply. However, many may not and the Government will need a mechanism to enforce the law. That’s where an OECD wide solution could be helpful.
Prime Minister Key is suggesting some mechanism to block digital retailers from access to OECD consumers if they do not comply with the VAT/ GST law.
Clearly this issue is now well and truly in the Government’s spotlight. NZ retailers have been pushing for something to be done for some time now and will be watching developments closely.
Cheers
Iain
Governments using lotteries to collect tax
Tax collectors in the EU are looking more closely at the use of lotteries to tackle VAT evasion.
This paper, just published, discusses how existing lottery schemes work and reveals there could be upside for governments. It concludes more empirical evidence is needed to confirm the benefits of tax lotteries but they may be a useful weapon in the fight against VAT (GST) evasion. http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_papers/taxation_paper_51.pdf
They might also be a useful tool for governments looking to reverse the revenue lost as a result of increased online shopping.
The challenges for governments from the growing digital economy have been widely discussed. The OECD is consulting on a possible multilateral solution, http://www.oecd.org/ctp/consumption/discussion-draft-oecd-international-vat-gst-guidelines.pdf. I wouldn’t be surprised if tax lotteries are considered as a tool to encourage compliance with laws requiring non-residents to register for VAT in countries where they are selling online products to consumers.
The paper on tax lotteries is the product of a recent workshop attended by 39 EU member states. They discussed lottery schemes already running in Malta, Slovakia, Portugal and Georgia. They also heard from experts in Greece looking at a scheme there.
Tax lotteries have been around for a while. Taiwan has used them since the 1950’s and there was some evidence they experienced up to 20% improved compliance as a result.
They’ve been used to encourage consumers to ask for receipts when buying goods and services. The receipts are then sent to a central agency (by post, text or email) or some other electronic system is used so the receipts become entries in a lottery. There are then regular draws and cash prizes. In Malta for example the draws take place each month and are done manually i.e. the receipts are sent to the central lottery agency and put into a large barrel from which the draws are made.
The idea is consumers are incentivized to ask for receipts and this discourages evasion by creating a paper trail which the tax authorities can use to monitor compliance.
Some data collected so far suggests these lotteries do have an initial impact on compliance with increased revenues for the government. However, it seems over time the benefits fade. The EU workshop found that the main difference occurred as a sharp increase in reported sales by very small retailers but little difference in the reported sales of large retailers. One study reported increased tax revenues of Euro 8m against administrative costs of Euro 1.6m.
There have been some interesting reactions, including the emergence of “professional players” in these lotteries, being people who devote a large amount of time to them and who have even been found to be submitting receipts into the lottery for expenses they did not themselves incur.
The EU is committing resources to better quantify the potential upside for states in running these sorts of lotteries.
Another overseas development for the NZ Inland Revenue Department to watch.
Cheers
Iain
28 October deadline for non-residents
Non-residents wishing to register under the special GST registration system have until 28 October to ensure their registration (and refund claims) are backdated to 1 April 2014.
All non-resident businesses who have incurred costs in New Zealand and who are not already registered for GST in New Zealand should consider registering under the new scheme so they can claim refunds of GST.
It’s not necessarily a straightforward process but it can be worthwhile.
Iain
Visiting sports teams
The recent publicity about AFL players being pinged for income tax as “entertainers” when they played the Anzac Day matches here is interesting. See here:
http://www.3news.co.nz/Wellington-AFL-game-hit-with-tax/tabid/415/articleID/355731/Default.aspx
Like everything in life there’s a GST overtone to this.
The players would have spent money on food, accommodation, transport and other stuff when in New Zealand, all of which would have been subject to GST.
The interesting question is how these players would get on if they sought GST refunds for the costs they incurred here as non-resident “entertainers”. It seems possible under the new GST non-resident registration rules but there are some reasonably strict criteria.
Still, could be a case of the Government taking with one hand and paying back with another?
Iain
NZ businesses are getting it wrong
I’m seeing increasing evidence of misunderstanding over how the zero rating rules apply.
From 1 April 2014 non-resident businesses can register for GST in NZ under a new system which allows them to claim GST refunds on business related costs. Historically a business had to supply goods or services in NZ before it could register and claim back GST on its costs here. That is no longer the case.
I’ve been working with a number of overseas businesses wanting to take advantage of the new system.
What’s starting to emerge is surprising. A number of these overseas businesses are looking to reclaim GST they should never have been charged in the first place.
The most common mistake I’ve seen is made by NZ service providers contracting with an overseas business. They’ve charged 15% GST when the transaction should have been zero rated.
To be fair, the zero rating rules are not the easiest in the legislation to follow. There’s quite a lot of case law on them which speaks to some of the complexities.
There seems to be a common misunderstanding that because services are performed in New Zealand (i.e. the work is done here) GST has to apply at 15%. That’s not necessarily the case. Only some services performed here and supplied contractually to a non-resident business are taxed at 15%.
If you’re providing services to overseas businesses I suggest you check how you are dealing with GST. If you’re incorrectly charging it at 15% you may find Inland Revenue comes knocking when your customer tries to register under the new system and claim back GST that should not have been charged.
Cheers
Iain
Global VAT alignment edges closer
At the Global Forum on VAT in Tokyo last week 86 countries signed up to the first agreed framework for applying VAT to internationally traded services and intangibles. The new guidelines set out core VAT principles to be applied when taxing services and intangibles, will ensure more consistency between countries, will reduce double taxation and will protect the neutrality of business to business (“B2B”) transactions.
While an important step in the right direction, the more vexing question of how to tax internationally traded business to consumer (“B2C”)services and intangibles has been left for another time.
The Global Forum on VAT occurs under the umbrella of the OECD and provides a platform for global discussions on VAT. The first session took place in November 2012. Last week was the second occasion academics, tax administrators. business representatives and others were invited to discuss VAT policy trends and developments.
The main output from this latest session was a set of new OECD Guidelines on applying VAT across borders.
The Guidelines can be downloaded from the the OECD website – here: http://www.oecd.org/ctp/consumption/international-vat-gst-guidelines.htm
The focus of the Guidelines is B2B transactions. They discuss place of supply rules, the well known “destination principle” (B2B services should be taxed in the country where the customer is located) and mechanisms available to countries to allow non established foreign businesses to recover VAT incurred there.
None of this is startling news for New Zealand. We’re already ahead of this stuff thanks to our super charged GST system. Just this month we’ve seen a new streamlined registration and GST recovery system come into place for overseas businesses incurring GST here.
The really challenging question for New Zealand, and every other country with a VAT, is how do you tax B2C services and intangibles traded across borders? Unlike goods there’s no border control in place to capture internationally traded services and there’s no existing registration system to collect the tax from the customer/consumer.
This really is the more urgent question in my view. Countries are attempting to deal with the issue on their own (eg South Africa and the EU) but global cooperation and alignment are critical. Some States in the USA have implemented mechanisms to apply state taxes to inter-state B2C online sales (such as e-books) and the latest evidence suggests these measures are improving the sales of local bricks and mortar retailers at the expense of online retailers such as Amazon.
Last week’s Forum in Tokyo urged the OECD to finalise work on the VAT treatment of B2C services in time for the next Global Forum on VAT in November 2015. That seems like a long time to wait, but as we all know, achieving global consensus on anything is a slow process.
Cheers
Iain
At least it’s a start – UPDATE on E-commerce in South Africa
An update on the South African proposal to require non-resident e-services suppliers to register for VAT.
The effective date for the new rules has been stretched out to 1 June 2014 (an extension of 2 months) to allow businesses more time to get ready. Registration is open however from 7 April for those wishing to beat the rush.
Following consultation the scope of services caught by the new registration requirement has been narrowed in an attempt to exclude some common business to business transactions. This should eliminate some unnecessary compliance obligations for businesses and the South African tax authority.
This is clearly a work in progress for the South African government, as it is for every other country, so more changes to the detail are expected (such as to the registration threshold for example). They intend to continue with a wider review on the taxation of electronic services, particularly in the financial services sector.
You can read more about this here: http://www.treasury.gov.za/comm_media/press/2014/2014032801%20-%20Press%20Release%20-%20Electronic%20Services%20Regulations.pdf
Iain
Are you ready for the 1st of April 2014?
Change to tax law is as certain as tax itself.
The 1st of April is a favourite of governments around the world for ushering in tax changes.
Here’s a snippet of some changes that are coming into force in GST, VAT and other indirect taxes on 1 April:
Albania – Supplies of medical services and medicines will be exempt from VAT, alcohol and tobacco excise taxes will rise and energy drinks will become subject to excise tax.
Cook Islands – The standard VAT rate will increase from 12.5% to 15% and import charges on some foodstuffs will reduce to zero.
France – CO2 content will become the basis for calculating excise taxes on energy products.
Japan – The rate of Consumption Tax will increase from 5% to 8%.
Lithuania – Excise duty on alcohol products will increase.
New Zealand – Non-residents will be able to claim refunds of GST for New Zealand business expenses under an enhanced registration system.
South Africa – Foreign suppliers of electronic services to residents in South Africa will have to register for VAT and charge South African VAT.
So, a busy day for indirect tax changes. Don’t be fooled!
The South African measure is especially interesting and deserves more comment in a separate post.
Iain