Anger at law to block refunds

By BRIAN FALLOW economics editor

Government plans to keep hold of up to $200 million by amending the law on GST will set a "horrible precedent" of retrospective legislation, says the Institute of Chartered Accountants.

The change, which relates to services contracted for outside New Zealand by non-residents but consumed here, affects the likes of in-bound tourism operators, as well as schools and universities collecting fees from foreign students.

For years it was a grey area. For tax purposes, it was not clear whether the fact that the services were consumed in New Zealand (which implied they should attract GST) was more significant than their sale to non-residents (suggesting they should be treated like exports, which do not attract GST).

Revenue Minister Michael Cullen said yesterday that the tax was always supposed to apply to foreigners for the goods and services they consumed in New Zealand.

The previous Government amended the law to that effect two years ago, but it did not make the change retrospective. That encouraged firms which had paid the GST before 1999 to claim it back.

The Government now plans to stymie those claims by applying the "clarification" back to 1986 when GST was introduced.

"Obviously this measure is retrospective but there is potentially between $150 million and $200 million of revenue at stake," Dr Cullen said.

"The money is not theirs to claim. They simply collected it and passed it on to the Government."

The change will not apply to people who did not charge the GST or who did, but have received a refund from the Inland Revenue.



The Institute of Chartered Accountants' tax director, Jeff Owens, said: "It is a horrible precedent - officials screw up the legislation, 'but don't worry, we can fix it retrospectively'."

It was not a matter of denying people a windfall gain, Mr Owens said.

"They paid some GST the law says they shouldn't have. The underlying policy is not as clear as Dr Cullen makes out. The prior interpretation of the law, that those supplies are not subject to GST, had been confirmed by IRD rulings and the Court of Appeal.

"The fact that the Government introduced a law change prospectively in 1999 indicates that the law was something different prior to that."