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Taxing the Digital Economy


Taxing the Digital Economy

“Proposals by the OECD aimed at addressing the tax challenges of the digital economy could have significant implications for New Zealand businesses and consumers.”
Peter Scott - KPMG’s head of indirect tax services

The proposals draw attention to the loss of GST revenue as the popularity of online shopping grows with Kiwi consumers.

Among the options canvassed by the OECD are the use of countries’ GST regimes to tax the digital economy and online sellers. The UK is the latest European country to move to tax cross-border internet sales at their domestic GST rate. The US Senate has recently approved legislation for State Governments to enforce collection of sales taxes by online retailers based in other States.

“Businesses around the world have been able to significantly increase their market and sales to customers in foreign jurisdictions through the use of online shopping. This has reduced the local GST revenue as these supplies via the internet result in little or no GST being collected. This presents a huge challenge for our traditional GST collection system.” says Scott.

The OECD suggests lowering or removing customs exemptions for low value imported physical goods. In New Zealand, there has been pressure from local retailers for Government to reduce the GST exempt import threshold of $400. This would satisfy the demands of “bricks and mortar” store retailers but Peter Scott points out, “There would be increased compliance costs for businesses and greater administrative costs to the Government.”

A New Zealand discussion document on lowering the GST exempt import threshold was due late last year, but has been deferred pending a wider review of BEPS [Base Erosion and Profit Shifting] issues by New Zealand officials.

“There is an obvious challenge in enforcing compliance from non-resident suppliers and this has been recognised by the OECD. Nevertheless, requiring non-residents to charge and collect GST has been identified by the OECD as the most viable option to protect GST collections,” according to Peter Scott.

“The reality is we are going to see some changes in New Zealand, and around the world, to collect GST on internet sales. In New Zealand, the challenge will be how quickly and effectively any changes can be implemented without imposing significant system and compliance costs.”

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