Government releases digital service tax options

The Government is pushing ahead with its plans for a new digital service tax (DST) with the release of two options on Tuesday. It's now calling for submissions from Kiwis on the proposals.

The DST was first announced in February, and would impact "highly digitised companies" like Facebook, Uber and Airbnb by collecting tax on their revenue from operating in New Zealand.

The discussion document released today shows the Government is considering two main options. Finance Minister Grant Robertson and Revenue Minister Stuart Nash say these will ensure offshore digital companies no longer enjoy tax breaks which are not available to local businesses.

The two options are:

  • Changing the current international income tax rules, to allow more taxation in market countries.
  • Applying a separate DST of three per cent to certain revenues earned by highly digitalised multinationals operating in New Zealand.

"A DST would be narrowly targeted at certain highly digitalised business models. It would not apply to sales of goods or services, but to digital platforms who depend on a base of users for income from advertising or data," Robertson says.

"The value of cross-border digital services in New Zealand is estimated to be around $2.7 billion. The estimated revenue of a DST is between $30 million and $80 million, depending on the design."

Nash says any DST in New Zealand would be an interim measure until the OECD makes a collective decision on changing the current international income tax rules.

"The Government is committed to future-proofing the tax system to ensure it can handle changes to how people work and how business is done," he says.

"The significance of the digital economy is only going to grow over the coming decades. We need to keep adapting to ensure multinationals who do business here are paying their fair share of tax."

However, tax experts warn the implementation will be difficult. PWC tax expert Geof Nightingale told The AM Show in February the DST comes with "potential hazards".

"There's always a risk whilst we might collect the tax from the multinationals the economic burden of it shifts to the consumer through the pricing," he said.

There's evidence of this happening in the past with previous taxes, and Mr Nightingale said it would be a risk.

"There was a bit of evidence that happened when we put GST onto digital services in October 2016, some of the companies changed their prices and some didn't.

"It's not clear, but that is a risk that this tax could [have]."

Victoria University tax expert John Shewan had the same sentiments, and told Newshub the devil will be in the detail.

"It may well be is those companies simply pass that back to the New Zealand users so the tax ends up actually being borne by New Zealanders, so that's a big issue."