News Release: Wednesday 12 August 2009

Prime Minister Delivers GST Tax Certainty To Tourism Operators

The Inbound Tour Operators Council today cautiously welcomed the decision by the Prime Minister and Minister of Tourism, John Key, to bring some certainty to the long running and senseless dispute between Inland Revenue and inbound tourism operators.

Brian Henderson, president of ITOC said: “The tax issue has been contentious for the past few years with tour operators being subjected to conflicting and confusing interpretations by Inland Revenue on what part of our export business is subject to GST”

“Jobs and revenue in our country’s biggest export earner have been at risk due to the uncertainty. John Key listened to our concerns earlier this year when taking up office and promised to work with officials to resolve the matter in time for our conference. While he’s delivered on that promise and given some certainty to the future treatment of GST we now await the details to see exactly how we will be affected" he says.

Mr Henderson said that he applauded the decision to abandon January 2007 as the date for retrospective adjustments to be imposed on tour operators as this had been grossly unfair and could have placed many businesses in financial difficulties.

“Inland Revenue only advised us of their latest position in May 2008 so they could hardly expect to claw back taxes we had never collected from our customers. Moving the date to 1 July 2008 is a vast improvement and will save our members millions of dollars that they simply don’t have.”

“However many will still be out of pocket as inbound tour operators price their services up to 18 months in advance and are contractually locked into them so that consumers overseas can purchase their New Zealand holidays well in advance at guaranteed prices. We’d hoped for an April 2010 starting point to allow us to make these adjustments so that is disappointing.”

“The major disappointment is that the decision to charge GST on our exported service fee has not been overturned. Our primary aim was to seek a return to Inland Revenue’s original GST interpretation as outlined by them in writing to us in 2001.”

Mr Henderson said that he was pleased that legislation would be tabled to tidy up the existing act.

“The act is clearly in need of clarifying. We do not want to be subject to further changes of interpretation by Inland Revenue in the future.” said Mr Henderson.

Mr Henderson said that an area of concern that still remains is our competitiveness with overseas based companies.

“A number of inbound tour operators offering New Zealand packages are based offshore. Some have New Zealand based staff but all their tour accounts are maintained offshore meaning they do not apply GST to their service fees. New Zealand based inbound tour operators cannot compete fairly with their offshore based competitors as we now have to apply GST while they don’t. I know that some New Zealand based inbound tour operators will now reconsider their operations in this country with some deciding to relocate overseas or even close down their businesses with the loss of jobs, a situation which the tourism industry and the New Zealand economy can ill-afford,” said Mr Henderson.

Background:

In 2001, Inland Revenue concluded that inbound tour operators could zero-rate their facilitation fee or margin on a holiday package when provided to an offshore client, but did have to pay GST on the goods and services consumed in this country by visitors. At that time, the ruling was accepted by the industry in good faith and was consistent with other export based sectors that provide services internationally and do not pay GST on such services.

From 2005 to 2009 conflicting interpretations were offered by different Inland Revenue offices. The zero rating of margin however, was upheld by an adjudication report in October 2008. In February 2009, after a review, the Chief Tax Counsel determined that facilitation fees could not be zero rated. This situation was compounded by Inland Revenue’s inability to effectively communicate its policy changes to inbound tour operators throughout 2007 and 2008 along with a demand to pay retrospective taxes to 1 January 2007.

ITOC Background:
The Inbound Tour Operators Council of NZ was founded in 1971. It represents 250 tour operators and suppliers throughout the country who package, distribute and market New Zealand tourism products and services internationally.

ENDS

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