The Government is proposing changes to ensure GST does not unfairly disadvantage New Zealand service industries.

The proposals are contained in a discussion document on GST and imported services, released today.

"The discussion document looks at GST and imported services in light of the many changes that have taken place since the tax was introduced, 15 years ago," Revenue Minister Michael Cullen said.

"We are making increasing use of electronic commerce and importing more services than we did in 1986, a trend that is likely to continue.

"Under current law, services purchased from New Zealand companies attract GST, but those purchased from other countries do not. This amounts to a concession for imported services that will increasingly work to the detriment of New Zealand service industries.

"The proposed policy seeks to ensure that the GST system adjusts to the electronic commerce environment and does not unfairly disadvantage New Zealand interests.

"Those most likely to be affected if the policy is adopted are suppliers of financial services, for whom there will be some increase in costs. However, the Government is committed to working with banks and other financial institutions to ease the transition, and consultation with the sector will continue," Dr Cullen said.

The main proposals are:
- Businesses importing services that would normally attract GST in New Zealand will have to pay GST on them if used for activities that do not involve charging GST.
- Management fees and cost allocations charged to a New Zealand subsidiary or branch of an overseas company must be apportioned to ensure the appropriate level of GST is charged.
- Imported digitised products, such as software supplied over the Internet, will be treated as supplies of services for GST purposes.
- Telecommunication services will be regarded as having been supplied in New Zealand if a New Zealand customer initiates the services. Non-resident telecommunications suppliers may have to register here.

Revenue Under-Secretary John Wright said the discussion document presented a robust analysis on a complex and increasingly important area of the GST base.

GST and imported services, is available on the web site of the Policy Advice Division of Inland Revenue at www.taxpolicy.ird.govt.nz and the Treasury web site at www.treasury.govt.nz/tax.

Ends

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