NZ's 'Netflix tax' set to rise as GST charged on digital downloads

The Government is missing out on $180 million a year by not collecting GST on online purchases, a new discussion paper says, including $40 million from shopping on iTunes, Netflix, Spotify and other online services.

Revenue Minister Todd McClay this morning released a discussion paper on the Government's proposals to collect GST on "cross-border services" such as digital downloads, streaming services, and e-books, and also on low-value imported goods.

The paper showed that Government also planned to target more traditional services such as legal and accounting services supplied remotely from overseas.

Mr McClay said the proposals were about creating a level playing field for collecting GST and putting New Zealand businesses and jobs ahead of the interests of overseas retailers.

"But it must be done with the least possible inconvenience to New Zealand consumers," he said.

The minister said the volume of services, online downloads and goods purchased by New Zealanders from overseas suppliers on which no GST was paid was an increasing concern for the Government.

"Current estimates put the amount of GST foregone on these purchases at approximately $180 million a year, and growing at around 10 per cent each year."

The paper showed that out of this total, $40 million related to services and intangibles such as iTunes songs and streaming on Spotify.

Mr McClay said the proposals were not purely about recouping the GST on these purchases. They were also about fairness to New Zealand-based retailers who were required to charge tax on their goods and services.

The Government planned to focus on the area of online services first, and legislation was expected to be introduced by the end of the year.

The issue of paying tax on imported goods was more complex, and officials would not come up with recommendations for Government until late October.

Labour's revenue spokesman Clayton Cosgrove said his party was cautiously supporting the proposals.

He also accused Prime Minister John Key of "verbal juggling" for insisting the proposals were not a new tax on consumers.

"I would have thought any man or woman on the street would say that if something isn't taxed and then it is going to be taxed, then that's a new tax. But I'm old-fashioned."

At present, New Zealanders can purchase physical goods such as clothing tax-free if the duty and GST amounted to less than $60.

This effectively meant the threshold for paying GST on imported goods was between $226 and $400 - one of the higher thresholds in the world.

New Zealand officials are working closely on this issue with Australia, which has proposed lowering the threshold to $20 or even zero.

If the proposals were approved, offshore suppliers such as Apple and Amazon would be required to register and return GST if their supplies of services to New Zealand residents exceeded a given threshold over a 12-month period.

The Government was asking for submissions on this threshold, though it was only likely to capture the larger companies.

The tax would then be collected at the point of sale. But if New Zealand consumers somehow managed to avoid paying GST, they could face stiff penalties.

The paper said a person who knowingly avoided tax on online purchases faced a fine of up to $25,000, or $50,000 for repeat offences.