Goods and Services Tax (New Zealand)

Goods and Services Tax (GST) is a value-added tax or consumption tax for goods and services consumed in New Zealand.

GST in New Zealand is designed to be a broad-based system with few exemptions, such as for rents collected on residential rental properties, donations, precious metals and financial services.^[1] Because it is broad-based, it collects 31.4% of total taxation, GDP.^[2]

The rate for GST, effective since 1 October 2010 as implemented by the National Party, is 15%.^[3] This 15% tax is applied to the final price of the product or service being purchased and goods and services are advertised as GST inclusive. Reduced rate GST (9%) applies to hotel accommodation on a long-term basis (longer than 4 weeks). Zero rate GST (0%) applies to exports and related services; financial services; land transactions; international transportation. Financial services, real estate, precious metals are also exempt (0%).

History

GST was introduced on 1 October 1986 by the Minister of Finance, Roger Douglas, at a rate of 10% on goods and services. It replaced existing sales taxes for goods and services. In 1989 GST was increased, again an action initiated by the Labour Party with Deputy Prime Minister, Helen Clark and Prime Minister, Geoffrey Palmer taking GST to 12.5%.^[4] 21 years on in 2010, GST was raised again by the National Party's Prime Minister, John Key, taking GST to 15%.^[3]

GST was introduced in conjunction with compensating changes to personal income tax rates and removal of many excise taxes on imported goods.

How it works

GST-registered ^[5] organisations and individuals pay GST only on the difference between GST-liable sales and GST-liable supplies (i.e., they pay GST on the difference between what they sell and what they buy: income less expenditure). This is accomplished by reconciling GST received (through sales) and GST paid (through purchases) at regular periods (typically every two months, with some qualifying companies opting for one-month or six-month periods), then either paying the difference to the Inland Revenue (IRD) if the GST collected on sales is higher or receiving a refund from IRD if the GST paid on purchases is higher.

Businesses exporting goods and services from New Zealand are entitled to "zero-rate" their products: effectively, they charge GST at 0%. This permits the business to claim back the input GST, but the eventual, non-New Zealand based consumer does not pay the tax (businesses that produce GST-exempt supplies are not able to claim back input GST).

Because businesses claim back their input GST, the GST inclusive price is usually irrelevant for business purchasing decisions, other than in relation to cash flow issues. Consequently, wholesalers often state prices exclusive of GST, but must collect the full, GST-inclusive price when they make the sale and account to the IRD for the GST so collected.

GST threshold

Persons or entities with annual revenue less than $60,000 do not have to register for GST.^[6] This threshold has increased three times since the introduction of GST in 1986.

Effective date	GST threshold
1 October 1986	$24,000^[7]
1 October 1990	$30,000^[8]
1 October 2000	$40,000^[9]
1 April 2009	$60,000^[10]

Digital services supplied by offshore companies

On 1 October 2016, the taxation of digital ('remote') services supplied by offshore companies (non-New Zealand) to consumers based in New Zealand changed. Since that date, a GST of 15% (dubbed the 'Netflix Tax'^[11]^[12]) is applied to all supplies from offshore digital service suppliers to New Zealand-based consumers.^[13] It is the supplier's responsibility to apply, collect and remit the new GST to New Zealand's Inland Revenue Department.

That new piece of GST legislation mirrors similar rules governing the supply of digital services introduced in the European Union (EU) in January 2015 on the taxation of digital goods.

The general taxation of digital goods and services has become more common internationally since the OECD released its long-awaited BEPS report in October 2015. Action 1 of the report deals with the taxation of the digital economy. The report provided guidelines and recommendations for such taxes be they in the form of value-added tax, GST, equalisation levy, or withholding tax.^[14]

New Zealand is the latest jurisdiction to include such rules in legislation following in the path of Norway, the EU, South Africa, South Korea, Japan, and Australia.^[15]

Compliance Costs

Several studies have investigated GST compliance costs in New Zealand. The first of these was published by Sandford and Hasseldine in 1992.^[16]

References

^ "Exempt supplies (GST on exempt, zero-rated, special supplies and receiving remote services)". Inland Revenue. Retrieved 7 March 2020.
^ "GST Background Paper for Session 2 of the Tax Working Group" (PDF). February 2018.
^ ^a ^b "What GST is". Inland Revenue. Retrieved 7 March 2020.
^ "How GST affected retail sales in the 1980s". www.stats.govt.nz. Retrieved 21 May 2017.
^ "How to register GST in New Zealand".
^ Registering for GST.
^ "Goods and Services Tax Act 1985, section 51(1)(a)" (PDF). Inland Revenue. Retrieved 9 April 2023.
^ "Goods and Services Tax Amendment Act (No 2) 1990, section 9(1)" (PDF). Inland Revenue. Retrieved 9 April 2023.
^ "Taxation (GST and Miscellaneous Provisions) Act 2000, section 109(1)" (PDF). Inland Revenue. Retrieved 9 April 2023.
^ "Taxation (Business Tax Measures) Act 2009, section 27". Inland Revenue. Retrieved 9 April 2023.
^ "Netflix tax" bill passed – New Zealand Parliament, 11 May 2016
^ Entertainment bargains likely ahead of 'Netflix tax' in October – Stuff.co.nz, 15 August 2016
^ GST on "remote" services – Deloitte, April 2016
^ "GST Calculator". Friday, 19 October 2018
^ "GST on imported services and digital products". Australian Taxation Office. Retrieved 26 October 2023.
^ Sandford, Cedric (1992). The compliance costs of business taxes in New Zealand. Wellington: Institute of Policy Studies. ISBN 978-0-908935-79-6.

External links

Inland Revenue GST site
New Zealand Goods and Services Tax calculator
Treasury Taxation Overview

[1] "Exempt supplies (GST on exempt, zero-rated, special supplies and receiving remote services)". Inland Revenue. Retrieved 7 March 2020.

[2] "GST Background Paper for Session 2 of the Tax Working Group" (PDF). February 2018.

[:0-3] "What GST is". Inland Revenue. Retrieved 7 March 2020.

[4] "How GST affected retail sales in the 1980s". www.stats.govt.nz. Retrieved 21 May 2017.

[5] "How to register GST in New Zealand".

[6] Registering for GST.

[7] "Goods and Services Tax Act 1985, section 51(1)(a)" (PDF). Inland Revenue. Retrieved 9 April 2023.

[8] "Goods and Services Tax Amendment Act (No 2) 1990, section 9(1)" (PDF). Inland Revenue. Retrieved 9 April 2023.

[9] "Taxation (GST and Miscellaneous Provisions) Act 2000, section 109(1)" (PDF). Inland Revenue. Retrieved 9 April 2023.

[10] "Taxation (Business Tax Measures) Act 2009, section 27". Inland Revenue. Retrieved 9 April 2023.

[11] "Netflix tax" bill passed – New Zealand Parliament, 11 May 2016

[12] Entertainment bargains likely ahead of 'Netflix tax' in October – Stuff.co.nz, 15 August 2016

[13] GST on "remote" services – Deloitte, April 2016

[14] "GST Calculator". Friday, 19 October 2018

[15] "GST on imported services and digital products". Australian Taxation Office. Retrieved 26 October 2023.

[16] Sandford, Cedric (1992). The compliance costs of business taxes in New Zealand. Wellington: Institute of Policy Studies. ISBN 978-0-908935-79-6.

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