Tax plans not enough: Moutter

Simon Moutter says tax avoidance by multinational companies operating digital services needs to be dealt with. Photo / Nick Reed

Spark boss says GST proposal a step in right direction but bigger issue needs fixing.

Proposed changes to GST rules for online sales are a step in the right direction, but don't go far enough, says Spark chief executive Simon Moutter.

Moutter has previously said companies such as video-on-demand business Netflix had an unfair advantage through not paying tax, whereas Spark-owned Lightbox had to.

Moutter yesterday said he welcomed the fact that the Government was looking at making changes, but there were also other issues around tax that needed to be addressed.

"It's encouraging that the Government is taking steps to ensure that our tax system better reflects the realities of an increasingly globalised and digital economy," he said. "But it's not just online GST [which will simply be collected from already tax-paying New Zealanders], the much bigger issue of corporate taxation avoidance by multinational companies operating digital services across borders also needs to be addressed."

Tax experts said the Government was walking a thin line between the loss of tax from online sales and the inconvenience or cost of collecting it.

A discussion document released by Revenue Minister Todd McClay outlined plans to start collecting tax on online services including music, movies, e-books, software and online video content such as Netflix, which would result in GST of around $40 million a year.

The issue is one that has been raised by retailers that say they have a disadvantage to online sellers that did not have to pay the tax.

However EY GST executive director Paul Smith said there was still some way to go to fine tune the proposals.

"It's not great tax policy because you have the situation where you will be taxed on an e-book but not on a book from Amazon which is clearly not good policy," Smith said. "But it is a step in the right direction and to be fair, the systems for taxing physical goods are a lot more complex."

The Government was still in the process of deciding the threshold for registering for GST.

Australia will be looking to introduce its proposed GST changes on July 1, 2017. In comparison New Zealand has said it will look at introducing legislation later this year and then at applying it at some point next year, however this may be pushed out until 2017 in line with Australia.

New Zealand Retailers Association chief executive Mark Johnston said the Government should deal with goods at the same time as services, adding that he would like to see the proposal implemented a lot sooner than 2016.

Deloitte tax partner Allan Bullot said the move was a clear signal from the Government that it was going to look at the overall online sales system. "They're clearly saying enough is enough and we're going to have to change these rules to bring them within the system," Bullot said. "But they are still trying to take a bit of a measured approach and trying to have a system that doesn't impose greater cost to collect than the actual tax that they collect," he said.

"It's not surprising that services looks like it will be hit with GST earlier than goods because the practicality of how you collect GST on low-value goods is still a worldwide issue."

A submission period on the proposals will close on September 25.

What it means:

• If the changes are implemented, then GST would be charged on online services including music, movies, e-books and other online downloads.

• Any changes won't be implemented until 2016 at the earliest.

• Proposed changes for goods have not yet been announced and are likely to come in after tax on services.

• The submission period closes on September 25.