GST on services

By Eric Crampton 18/08/2015

The discussion documents on GST on services seem far less crazy than they could have. But there is one huge potential fishhook.

On the good side, the government at least is indicating a bit of realism about the likelihood of getting foreign suppliers to act as tax collection agents for the New Zealand government. That’s why they’re soliciting comments about a threshold: suppliers doing less than some amount of trade in services with New Zealand customers wouldn’t need to collect tax. It looks like they’re intending on hitting the larger ones that might find the fixed costs to be manageable.

But there’s one huge potential fishhook. Paragraphs 7.14-7.16 lay out what can happen for consumers who try to pretend that they’re business customers to get an ex-GST price. Businesses buying intermediate services from abroad would just claim the GST back anyway when charging it on the final sale here. People pretending to be GST-registered businesses are engaging in tax evasion and should have the usual tax-evasion stuff happen.

It’s the other category that could pose the problem. Customers could pretend to be resident elsewhere to avoid GST. When I’d first read this, I thought about, say, somebody hiring a kitchen design expert from abroad for some expensive home renovation while pretending to be based elsewhere. That would pretty clearly be tax evasion. Paragraph 7.15 talks about people supplying incorrect information to avoid being charged GST; this seemed the natural kind of read.

But Ben Craven points out that IRD could choose to interpret this as also including folks using VPNs to access foreign content. If IRD thinks you’re doing that to avoid GST, rather than to get three times the content, then the tax people could shut down parallel importation of digital content in ways that rights-holders here have thus far mostly been unable to do.

And if that’s the case, it might time for pitchforks and torches.