New Zealand Mulls GST On Online Sales To Check Tax Erosion: Awaiting OECD Guidelines

By @diplomatist10 on
An eBay sign is seen at an office building in San Jose, California May 28, 2014.
An eBay sign is seen at an office building in San Jose, California May 28, 2014. Reuters/Beck Diefenbach

The New Zealand Government is planning to slap Goods and Services Tax to online purchases. This was announced by Revenue Minister Todd McClay, who noted that currently goods purchased online, for value less than NZD400 [$392] are exempt from tax. Noting that the heavy erosion of tax is taking place, McClay said clamping GST would be done fairly to cover consumers, retailers and taxpayers. "Where tax is not paid by one group, it must be made up for by another," the minister said.

McClay said the Government is working with the Organisation for Economic Cooperation and Development to develop the rules for taxing online sales. However, it will also consider some reforms and may act even before the OECD's conclusions are released in November 2015, reports Tax News.

The minister said a number of tax jurisdictions has implemented this policy to target offshore purchasing and digital downloads. Indications are that these measures are having the desired effect. So, in the interim, officials have been instructed to report on these developments and study their suitability in implementing in the New Zealand tax system.

Spurting Sales 

As per latest stats, online retail sales in February 2015 were up by 9 percent compared to February 2014.  Online purchases with domestic merchants in February jumped 6 percent on a yearly basis. The spending at international sites was up 13 percent against February last year. Though growth rate has declined at recent months, it still showed that online sales were double the size of sale at domestic retailers, said a press release by Bank of New Zealand. Prime Minister John Key is on record that the Government lost out on revenues worth NZD200 million because of the non-collection of GST on online sales. Mr Key had hinted that it may force the hand of the Government and the cost of online shopping would go up, once GST is enforced.

Retailers Happy 

Meanwhile, the Government’s announcement has been welcomed by many retailers. Bay of Plenty retailers applauded the proposal by the Prime Minister to charge GST on online sales, reports NZ Herald. Chris Baskett, the owner of an independent bookstore, said charging GST for online purchases was "a step in the right direction." He said the proposal would mean Kiwis can contribute more to the tax bank and help in supporting the local economy. The retailer said it does not make sense to send everyone overseas and wind up the local businesses.

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