Advancing technology has prompted perhaps the most significant changes to our GST regime since the 2.5 % increase in 1989. The proposed changes largely follow Australian legislation and add a new dimension to what is subject to GST.

A recently released discussion document "GST and Imported Services - A Challenge in an Electronic Commerce Environment" outlines how the proposal will alter the GST treatment of imported services "consumed" in New Zealand.

Because Internet transactions disregard the geographical boundaries on which most tax rules rely, electronic commerce has challenged traditional tax principles.

Currently imported goods and imported services are treated differently for GST purposes - goods incur GST while services are not taxed. The proposed legislation will remove this distinction for many taxpayers and as a result our tax regime will be far more complicated:

- Imported services will be subject to a "reverse charge" where the recipient acquires the service for purposes other than making taxable supplies;

- Imported digitised products will be treated as supplies of services rather than goods; and

- Telecommunications services provided by non-residents will be deemed to be supplied in New Zealand when a New Zealand customer initiates the supply of that service.

The proposals are also designed to bring New Zealand into line with international trends in Value Added Taxes.

The complexity of the proposals has been criticised as being out of proportion to the potential revenue to be gained. It is currently anticipated that the proposals will be adopted and come into effect next year.

Willy Sussman is a partner in the Auckland office of Bell Gully.
Web site:Bell Gully

Email: willy.sussman@bellgully.com
August 2001