GST ruling threatens tour firms

By BRIAN FALLOW

Retrospective legislation denying them GST refunds could be the final nail in the coffin of some tourist firms, says Inbound Tourist Operators Council president Donn Gunn.

Citing the cost involved, Parliament's finance and expenditure select committee has endorsed changes the Government sought which will stymie claims for $125 million-worth of GST refunds from inbound tour operators and a further $50 million from educational institutions with foreign students.

"Given the tragic events in New York last week and the uncertainty about the future of Air New Zealand, the Government should be doing all it can to support and bolster the tourist sector," Mr Gunn said.

"There is a very real possibility some inbound tour operators will struggle to survive. The Government, by refusing to pay GST refunds to those firms who are entitled to them until that legislation is passed, could be putting the final nail in their coffin."

At issue are services consumed in New Zealand by non-residents, but contracted for outside New Zealand.

The Court of Appeal ruled in 1995 in a case brought by Wilson and Horton, that they should be zero-rated. The previous Government then legislated in 1999 to restore the principle that services consumed in New Zealand attract GST regardless of who consumes them.

But that change was not made retrospective, prompting first a stream of refund claims and then the present legislation which averts that risk to the revenue by changes backdated to 1986.

The rules are not, however, being changed on those inbound tour operators who did not pay GST in the first place, or on those who have already received refunds.

This unequal treatment is the basis for legal action by the Inbound Tourist Operators Council under a section of the Tax Administration Act which says all taxpayers must be treated fairly and equally.

Mr Gunn said the proposed legislation should not be brought back into the House until the courts had had the chance to hear that case.

In reply, a spokeswoman for Revenue Minister Michael Cullen cited the supremacy of Parliament.

The select committee rejected a proposal by Dr Cullen that refunds still be allowed when it could be shown they would be passed on to the tourists or students involved.

"We were informed that if [that] clause were enacted, advertisements would be placed, in countries where New Zealand tourism is popular, advising people who have been to New Zealand since 1986 that GST refunds are available.

"There is also a risk that overseas travel wholesalers may give the refunds to tourists in the form of discounts on future holidays that need not be in New Zealand. The result could potentially be a revenue risk of $200 million paid to overseas tourists with little ultimate benefit to New Zealand," the select committee's majority report said.