I was catching up on some reading of global tax developments and one in particular served as a reminder that in some respects our tax system is quite benign compared to other countries.

The UK have VAT rules which restrict what gifts and samples a business can provide in the UK without paying VAT.

The scenario is, a business buys or makes stock for sale and will have claimed VAT back on expenses relating to that stock. Sometimes businesses give stock away. They may be gifts to employees or loyal customers or perhaps samples provided as enticements to potential customers.

Under the UK restrictions only gifts up to a certain value and only one sample per person can be provided without the business incurring a VAT liability. If they exceed those limits the business has to pay VAT on the value of the gift even though they have not received any money for it.

Recently the European Court of Justice decided the UK is allowed to limit the value of business gifts that can be made VAT free but is not entitled to restrict when samples may be given away VAT free.

This court decision means the UK Government now has to change its VAT legislation and faces having to pay refunds to some businesses which may have complied in the past with the rules on samples.

In New Zealand we just don’t see these sorts of issues. For a start it’s not likely a court could decide our GST legislation is wrong and must be amended. Also, the framers of our GST system chose not to put in unnecessarily complex rules on businesses providing gifts and samples. The costs of policing these sorts of exceptions often outweigh the actual tax lost by not have the rules in the first place.

Here’s to a simple GST system!


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