There are no tax specific announcements in Budget 2019. Core tax revenue is forecast to increase from $80.2 to $84.7 billion by 2020. The increase is attributed to the expected increase in wages arising from the shortage of supply of labour and additional GST coming from growth in household consumption rather than any significant changes in the tax regime. Measures introduced in Budget 2018 such as the ring-fencing of residential property tax losses and GST on low-value goods imports are expected to contribute 0.2% of GDP over the next five years.
Tax Working Group Proposals
Budget 2019 contains no real mention of Government’s current thinking on the remaining tax reforms proposed by the Tax Working Group (TWG) following the Government’s rejection of the TWG proposed Capital Gains Tax.
A number of the recommendations of the TWG are being considered for inclusion in the Inland Revenue’s tax policy work programme. Once fleshed out by Inland Revenue Policy details will be issued in due course.
One of the matters to be considered is a Digital Services Tax which Government will look into if there is insufficient progress by the OECD in finding a multi-lateral solution on how best to tax the digital economy. A Digital Services Tax would most likely be some form of ‘clip-the-ticket’ low percentage charge to be collected on digital goods and services.
Aside from a Digital Services Tax areas that may be looked into include:
- A tax regime to encourage investment in nationally significant infrastructure projects.
- Taxing vacant land and looking on how best to tax land speculators.
- Additional measures for improved collection and compliance including
- Making directors with an economic interest in a company personally liable for a company’s PAYE and GST;
- Departure prohibition orders; and
- Aligning the standard of proof for PAYE and GST offences.
- Increased enforcement rules on closely held companies.
- Review loss-trading activities potentially in tandem with a review of the loss continuity rules.
GST on Telecommunication Services
GST to be charged on overseas telecommunication services
- Prior to Budget 2019 an Officials Issues Paper was released, announcing plans to change the way in which telecommunication services are treated for GST purposes.
- If enacted, GST will be charged on overseas telecommunication services provided to New Zealand residents from 1 October 2020 based on their residence. This change will align New Zealand’s GST treatment with similar treatment in overseas countries.
- Currently when a New Zealand resident is overseas and uses mobile roaming, the service is zero rated on the basis the supply takes place outside New Zealand. This place of supply rule while central to the supply of goods, is difficult to apply with regard to remote digital services.
- Many OECD countries apply their GST equivalent consumption tax based on the place of residence of the consumer and not on where the supply occurs. As New Zealand applies a different rule there is the potential for users to suffer double taxation (or enjoy double non-taxation) on certain services. This is not a desirable outcome and it is therefore necessary to reform how GST is applied to such services.
- Consequently from 1 October 2020 any telecommunication services provided to a New Zealand resident will be charged GST at 15%.
- Practically it means that you will be charged NZ GST on roaming services used while overseas. Similarly visitors to New Zealand will not be charged GST on roaming services used while in New Zealand.
- This treatment is similar to the so called Netflix tax which requires non-resident providers of remote digital services to return GST on the supply of such services to consumers in New Zealand.