"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 what the threshold for registering for GST would be - the current threshold is for more than $60,000 per annum, but Smith said the government may decide to lower this, requiring smaller vendors to also register for GST in New Zealand. He said international experience had shown the implementation of taxing on services was successful with most large corporations voluntarily registering for GST.
Deloitte tax partner Allan Bullot said the move was a clear signal from the government that they were 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 world wide issue."
One of the main issues the government could have on taxing services according to Smith, was around the definition of imported services, with the possibility that consultants overseas giving advice via the internet or email could also come under the definition of a service, and may then be required to pay tax. Another issue was around identifying private or business consumers.
"If you are supplying the services to a business customer, you do not have to charge GST to that customer but the practical issue is really around identifying who is a business customer and who is a private customer," Smith said.
Spark chief executive Simon Moutter had previously highlighted what he said was an unfair advantage that companies such as video on demand business Netflix had through not paying tax, when Lightbox, which was based in New Zealand, did have to.
Although he welcomed the fact that the government was looking at making changes, he said there were other issues around tax avoidance that also 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," Moutter 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."
See the full PwC analysis here:
