22 March 2002

The government is proposing to relieve the over-taxation of business-to-business transactions in the financial services sector, Revenue Minister Michael Cullen announced today.

"Financial institutions cannot claim GST refunds on most goods and services they buy because the services they supply are exempt from GST. Instead they must absorb the costs or pass them on to their customers.

"The government recognises the problem this creates and is concerned to relieve it,” Dr Cullen said.

“We are proposing to zero-rate GST on services supplied by the sector to registered businesses. The effect would be that GST would still not be payable on the services but that the financial institutions could claim back GST on their business costs.

"The proposal developed out of discussions with the industry and will be subject to a further round of consultations. Later this year the government will release a discussion document on the wider issue of GST and financial services, seeking public comment. It will include details on how the zero-rating idea might work.

"Any resulting legislative changes will be included in the first taxation bill after the election. In the same bill we will also introduce a measure to remove another GST anomaly, the fact that imported services are not subject to GST.

“This serves as an incentive for New Zealand businesses to import services rather than acquire them locally. The government's solution is to introduce a 'reverse charge', whereby the New Zealand recipient rather than the overseas supplier assesses the GST and pays it to Inland Revenue.

"We had intended to include the change in the taxation bill scheduled for introduction in May but have decided that it should be dealt with at the same time as the zero-rating measure. The two measures are expected to take effect from 1 April 2004,” Dr Cullen said.

Technical information on the proposals is available on the website of the Policy Advice Division of Inland Revenue at www.taxpolicy.ird.govt.nz.

Ends

© Scoop Media