The Government will legislate to clarify the pre-1999 application of gst to services contracted for outside New Zealand by non-New Zealand residents but consumed here.

The change, which will take effect from today once the legislation is enacted, will affect in-bound tourism operators and schools or universities in respect of the fees paid by foreign students.

"I know as a member of the government which brought in gst that the policy intention was that the tax was supposed to apply to foreigners for the goods and services they consumed in New Zealand.

"In fact, that was one of the key features of the tax," he said.

The previous government had moved to clarify this by amending the law in 1999. What the Government is now proposing is to apply that clarification back to October, 1986 when gst was first introduced.

"Obviously this measure is retrospective, but there is potentially between $150 million and $200 million in revenue at stake.

"People who did not charge gst, or who did and have received a refund from the Inland Revenue Department, will be exempt from the change.

"Refunds will also be available to claimants who can prove that they have refunded the equivalent to the amount they are claiming from IRD to the tourists or students who used the service.

"However no refund will be paid out where this proof is not available," Dr Cullen said.

"Some gst registrants are now trying to claim large refunds for the years 1986 to 1999. But the money is not theirs to claim, they simply collected it and passed it on to the Government," Dr Cullen said.

"They conducted their business and filed their tax returns for those years on the assumption that gst was payable, and are now trying to change the basis on which they filed."

The change will be referred to the Finance and Expenditure Select Committee for inclusion in the Taxation Bill now before the committee.

Technical details of the legislative amendment are available in a special report published on the web site of the Policy Advice Division of Inland Revenue at http:// http://www.taxpolicy.ird.govt.nz

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