ISPs may become exporters

By ADAM GIFFORD

New Zealand's internet service providers could become a source of export dollars if the recommendations of Victoria University's Centre for the Study of Competition and Regulation are taken up.

In a paper prepared for the centre, Bronwyn Howell argues that providers' services should be GST-exempt, in the same way as financial transactions are.

"Perhaps the time has come to accept that, if information transactions are to be the equivalent of capital transactions as the currency of the information age, then information movements, too, should qualify for tax exemption, thereby placing such transfers on an equal footing with financial movements," she said in her paper.

Ms Howell said the real costs of internet service delivery here were lower than in Australia and this was reflected in cheaper consumer prices and greater penetration of the New Zealand market.

"Given the low barriers to entry for providers and the ever-decreasing marginal costs for provision of all telephony services, including international calls, this might indicate that a potential exists for New Zealand-based providers to enter the Australian market providing lower-cost services directly using New Zealand-based servers."

Some point-to-point calls in New Zealand are already routinely routed through Australia, and there is technically no barrier to Australian calls being routed here. It is also possible for New Zealand internet providers to serve customers further afield.

She said this market was unlikely to develop until Inland Revenue clarified the law providing for zero rating of exported services.

"Normally it could be expected that, as the information transfer is provided to a non-resident who ultimately consumes the information in an offshore location, the service provision would, like other exported goods and services, be zero-rated.

"However, the actual information transfer, as distinct from consumption of the information the transferred message contains, takes place in New Zealand."

The nature of electronic services meant it was possible the tax collector could argue that consumption had occurred in New Zealand, and GST should be levied.

There were precedents both ways.

"Zero rating has been allowed in the telecommunications industry for electronic transfers down a fibre-optic cable to a foreign recipient," Ms Howell said.

"However, the provision of education services to a person physically in New Zealand (effectively an information transfer) is levied for GST, even though the recipient eventually leaves New Zealand."