Sharechat Logo

Govt ready and willing to fill the gap on digital services tax if OECD solution fails

Tuesday 4th June 2019

Text too small?

The government is concerned that a concerted international effort to ensure multinational digital firms pay their fair share of tax will fail, so will decide this year on whether to go it alone as an interim measure. 

Ministers Grant Robertson and Stuart Nash today said they would prefer to be part of a multilateral effort through the Organisation for Economic Cooperative and Development, but if that doesn't make sufficient progress, the government will introduce a 3 percent tax on certain digital transactions as an interim measure. 

They've issued a consultation paper seeking feedback on whether to wait for the OECD to come up with an internationally agreed solution, or to apply a separate tax on its own as an interim measure. Submissions are due by July 18. 

"Modern business practices, digitalisation in particular, mean that a company can be significantly involved in the economic life of a country without paying tax on income or turnover," Finance Minister Roberston said in a statement. 

"Multinational companies like social media platforms and e-commerce sites generate income through cross-border digital services rather than face-to-face retail." 

The government's view effectively adopts the conclusion of the Michael Cullen-led Tax Working Group, which said New Zealand should participate in the OECD discussions, but be ready to implement a digital services tax on its own if enough countries do the same, and if it's reasonably sure local exporters won't be hit by retaliatory measures. 

The proposed tax would be imposed on services that facilitate the sale of goods or services such as Uber or eBay, social media platforms like Facebook, content sharing sites like YouTube and Instagram, and search engines and the sale of user data. 

The tax wouldn't capture ordinary sales of goods or services over the internet, such as through Amazon, which the government is already targeting in other workstreams. And it would exclude the provision of online content, such as Netflix. Cloud-based accounting services, such as Xero, would be excluded, as would telecommunications and internet service providers, standard financial services, and television and radio broadcasting. 

Such a tax is estimated to generated between $30 million and $80 million of additional revenue for the Crown. That's about 0.1-0.3 percent of the $20.8 billion of GST collected in the June 2018 financial year. 

"While the revenue raised would not be large, a DST could have other benefits. Much of the recent public concern about the under-taxation of multinationals has focussed on high-profile digital companies that do not have a physical presence in New Zealand (and so are not subject to income tax)," the consultation paper said.

"By taxing these companies, a DST could improve public confidence in the fairness of the tax system, which is an important factor underlying voluntary compliance."

The paper notes there's a risk in waiting to see what the OECD can achieve, and even if a solution is found, it might not take effect until 2025. 

Revenue Minister Nash said if the government proceeds with a digital services tax, it will be an interim measure.

"The government would look to repeal it if and when the OECD’s international solution was implemented," he said. 

The discussion document said legislation for a digital tax could be introduced in 2020, which is an election year. 

(BusinessDesk)



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

SML - Synlait Milk Limited - Trading Halt of Securities
AIA - Auckland Airport announces board chair changes
AIA - Auckland Airport announces board chair changes
CEN - Tauhara commissioning progress update
FPH initiates voluntary limited recall
March 28th Morning Report
KFL Celebrates 20 Years of Excellence in Investment Mgmt.
SVR - Savor FY24 Earnings Guidance & Change in Banking Partner
NZK - NZ King Salmon Investments Limited FY24 Results
March 27th Morning Report