Bank fees likely to escape GST trawl net

By VERNON SMALL

The Government is investigating adding GST to some imported services but is downplaying fears that bank fees will be hit.

Financial services have been exempt from the consumption tax, now set at 12.5 per cent, since it was introduced in 1986.

But that was largely because of practical problems in establishing what level of fees should be taxed and ensuring that institutions did not avoid the tax by changing fee structures.

A review of the GST status of all financial services, which would include bank fees, insurance policies and even interest payments, has been in progress since 1999.

This year's tax review, released last month, recommended that the review should continue.

But Revenue Minister Michael Cullen has effectively ruled out removing the GST exemption on financial services.

He told the Herald it was a difficult issue and "great change was unlikely to occur".

Many people argued that it was not worth worrying about removing the anomaly, and "that is probably not too far away from being my view", said Dr Cullen.

A tax adviser to the minister said the only live issue in this area was the treatment of imported services and whether they should attract GST if they were used to produce an exempt financial service - for example, an overseas computer consultant working for a bank.

The chairman of the Institute of Chartered Accountants' tax committee, Chris Abbiss, said bank fees, interest, life insurance policies and shares were all financial services and not subject to GST.

"It's fair to say that if a review is looking at financial services they are going to be looking at the rationale for leaving all those various elements in financial services."

He understood the review could reach the stage of issuing a discussion document next year - meaning it would not be considered in this Government's term.

"It seems ridiculous to just about all of us that [GST on] imported services be immediately imposed when there was a review of financial services GST going on."

Mr Abiss said that without pre-judging whether there would be a change, it was sensible to deal with financial services before moving on imported services.

But officials said that approach would not be taken, and imported services would be be considered first.

Bankers' Association chief executive Errol Lizamore confirmed that the association was talking to the Inland Revenue Department about a range of tax issues.

Initial interest centred on GST on imported services, he said.

But negotiations were in the early stages, the issues were complex and there was nothing concrete that the association could disclose.

The 17 registered banks charged at least $500 million in fees on their lending and credit activity in the past year.

If GST was charged on the full amount it could boost the Government's tax take by more than $60 million.

The Herald understands banks are concerned that they would either have to absorb the GST on fees or pass it on to customers already jaundiced about the cost of running their accounts.

Meanwhile, fund managers have reached an agreement with Inland Revenue to pay GST on 10 per cent of the management and administration fees of their unit trust and group investment funds.

The deal was struck after discussions between the department and the Investment Savings and Insurance Association.

It is estimated that the change will cost investors about $1.5 million a year.

The Trustee Corporations Association is in talks over a similar treatment for its fees.