The law introducing an “Amazon” tax on overseas internet shopping has been introduced to Parliament, but tax experts warned foreign firms might find it challenging to meet the Government’s deadline.
From October next year, people will be supposed to pay GST on most items they buy direct from overseas, with GST on items costing less than $1000 charged by foreign firms at the point of purchase.
The law – which National has indicated it is almost certain to support – will change the current situation under which items costing less than $400 can usually be bought from overseas websites free of GST.
Foreign firms that sell less than $60,000 of goods to New Zealanders each year will be exempt from having to collect GST, and GST and duty on goods costing more than $1000 will continue to be collected by Customs.
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Labour promised before the last election that it would not introduce new taxes, but made it clear at the time that would not prohibit closing the GST loophole, which the previous National government had also been planning to do.
Amazon is one of the companies that will be impacted by the change and had warned in August it could respond by cutting the range of products it sold to New Zealanders.
However, in a move that may auger well for the Government, Amazon partially backflipped on a similar policy in Australia last month, allowing Australians to once again buy many items from its main US site on which it will now collect GST.
Although many consumers have balked at paying more for shopping, National revenue spokesman Andrew Bayly said in October that he could not foresee circumstances under which it would oppose the change, which is popular with local retailers.
The basics of how the tax change would work were nailed down earlier this year, but tax experts said the legislation tabled in Parliament provided the finer details, for example about how transactions close to the $1000 cut-off could be handled.
Online marketplaces such as Amazon, Alibaba and Trade Me have been given a small break.
Although they will need to collect GST on sales by non-New Zealand traders that sell through their platforms, PwC tax expert Eugen Trombitas said the bill made clear marketplaces would not be held liable if their members provided false information about where they were based.
The New Zealand legislation is stricter than in Switzerland which has excluded online marketplaces from its “Amazon tax” regime which is due to take effect in January, he said. But he said it was a bit more flexible than Australia, which in July become the first country to require foreign firms to collect sales tax on its behalf.
PwC forecast the final law might not be passed until June, and Trombitas and Deloitte tax expert Allan Bullot agreed foreign businesses would have little time to prepare.
“Yes, there have been a lot of signals this is coming, but until you get the actual details, it is hard to build the things into your systems,” he said.
The tax change is expected to raise $112 million annually within three years, on the assumption that by then about three-quarters of goods people buy online form overseas will be from foreign sellers that comply with the law change.
Revenue Minister Stuart Nash said the internet had opened up more markets for global companies “but if they want to do business here they must follow the rules like everyone else”.
“We’re not the first to introduce such a rule and eventually this will be the new reality of doing business,” he forecast.
The tax bill will also implement another well-flagged rule change that means residential property investors will no longer be able to use losses on rental properties to offset tax payable on their other sources of income, such as their wages.