Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill

This is the part that there was quite a bit debate on in the Finance and Expenditure Committee. We just do not think it went far enough at all. The principal Act, the Goods and Services Tax Act, applies to all consumption that occurs in New Zealand. The reason for that is that it is fair, it is efficient, it is simple, it is easy to understand, and there are no complications. But the thing about this is that when GST was introduced in 1986 I do not think anyone had ever heard of the internet, let alone the online purchasing of goods and services.

GST was set at around 10 percent, it then went up to 12.5 percent, and now it sits at around 15 percent, after this Government said that it would not increase GST but it did. But that is the way it is, I suppose. The concern we have is that this is about putting a goods and services tax on intangibles. This is online services—cross-border supplies of remote services. So it is targeting a certain area. It was colloquially called the net services tax. If a company generates New Zealand receipts exceeding $60,000 over a 12-month period, then it has to pay GST. That is consistent with a New Zealand company.

But the thing with this bill is we think it should have gone a whole lot further. What this is, in effect, doing is providing a 15 percent competitive advantage to all goods purchased offshore, and not just electronic goods. I mean, it is good that we are levelling the playing field in terms of electronic goods and services. We agree with that, and that is why we are supporting this part of the bill. But here was an opportunity to go even further. I come from a provincial city, where a lot of our retailers are struggling at the moment. Part of that is because there is not that much money in the economy because things are a bit rough in provincial New Zealand, but also part of that is due to the massive explosion in online shopping.

You can go online these days and buy a pair of jeans anywhere in the world, and they can be delivered within a week, and do you know what? You get an automatic 15 percent discount on those because there is no GST, and yet those retailers down on Main Street, New Zealand, have still got to pay GST. We think that this part of the bill should have gone a hell of a lot further than it has. It is a start. It is a start—we recognise that.

There has always been this argument that “Oh well. It costs more money to police the compliance than what you would collect in revenue.” I do not agree with that in this case. Sure, we are only doing this on online goods, so it is easier. It does not place an impost on the Customs Service to handle physical goods in any way, shape, or form. But what it is, in effect, doing is burying our heads in the sand and saying that this is too difficult, or we don’t really care about middle New Zealanders who own the retail shops, who are competing with these offshore multinationals.

It was a classic case. Part 3 of the bill provided the Government with the perfect opportunity to actually level the playing field, and that is all—not tilt the playing field in terms of New Zealand suppliers or retailers, but just level the playing field for New Zealand retailers. Instead, what I believe it does is it actually tilts the playing field towards the large multinationals, as opposed to the good, hard-working middle New Zealand families who own the retail stores and who are missing out on these things.

We hear time and time again how people have bought a fantastic book on Amazon, or they have bought something from Abercrombie and Fitch, or any nature of goods over the internet. It is becoming part and parcel of the way we shop. One of the reasons why New Zealanders have embraced this form of retail therapy is that it is cheaper—it is cheaper. What we are talking about here is not tangible goods and services that cannot be bought in New Zealand. If that were the case, you could sort of understand that. You know—“I can’t buy this down here. The only place I can buy it is overseas. Therefore, I’ve got to.” Well, that sort of makes sense. But when the same goods and services that you can buy downtown you can also buy on the internet for a 15 percent discount, first and foremost, because there is no GST, then that is plain wrong.

The Inland Revenue Department admits, as does everyone—and I suppose this is a common theme throughout the speeches today—that a tax system has got to be fair, it has got to be efficient, and it is got to be simple. This part of the bill misses a great opportunity to address a real problem we have got in retail New Zealand—that is, GST should be charged on online tangibles.

I want to talk first about the good bits of Part 3 of the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill and then about the bits that have not been dealt with. The thing that is good is that we are taking a step forward here in understanding the new way that commerce is done. You know, it has taken us a little while as a Parliament to catch up with that, but the truth is that there will be very few parliamentarians and very few people listening to or watching the debate tonight who have not bought something online in the last year or so. It is now a very core part of how we do shopping. Everything, from booking holidays to downloading your favourite tunes on to your iPod to use when you go out for your walks—all of those things are now part and parcel of daily life, and so it is important that if we are to create a fair tax system that we begin to look at that.

What this piece of legislation does, as my colleague Stuart Nash has said, is deal with what are called remote services or intangibles, which are, essentially, e-books, music, videos, and software that we purchase from offshore websites. So it is an important thing, and there were certainly strong submissions made to the Finance and Expenditure Committee from people who do provide in that area. The easy one is to think about the difference between Netflix and Lightbox, with Netflix being the international, offshore provider of streaming television services and Lightbox being the one provided ultimately by Spark, a New Zealand - based company. Those two companies will now be treated fairly under this piece of law, and that is good for GST purposes. That is an important step forward for us and one that the Labour Party does strongly support.

Where our concern arises is that the opportunity has been missed to then take that to the next logical step, and that is around tangible goods. The reason why it should have been taken now is that we are now setting up a very, very unfair situation. If I want to go out and buy a birthday present and buy a book and I go on Amazon—I personally do not own an e-reader, but I prefer hard-copy books; I prefer to hold on to books and read them—and order online a hard-copy book and it comes into New Zealand for me, that is not going to create a GST obligation. But if I download it as an e-book to an e-reader—if I did have one—then it would. That is the unfairness that retailers in particular across New Zealand have rightly come to the committee on and said: “Good on you for taking one step forward.” But if we really wanted to support New Zealand businesses, and if we really wanted to support those main street retailers, as Stuart Nash called them, then we would have taken that extra step.

The arguments that were raised when we raised this in the select committee were largely around compliance and around the cost of that at the border. But I actually think the wherewithal is there for us to step beyond that, if we are serious about having a fair tax system. It was disappointing to us that some of the very, very good submissions that came through to the committee, particularly from the retailers, were ignored by the Government. It is this part of the bill where we feel that the missed opportunity is the greatest, because this was the chance to create that truly fair base to our tax system.

There are rules that have been put in place. My colleague Stuart Nash mentioned before that the supplier of remote services to New Zealand consumers has to exceed $60,000 worth of services in a 12-month period. That will capture those larger providers, but the truth is that in terms of the ones that could really be effective for New Zealand we are not going to be reaching those because the system does not go beyond the intangibles. The suppliers of remote services by non-resident suppliers to New Zealand will not be subject to GST unless the supplier and recipient agree otherwise, in which case the supplier will be zero rated. The supplier will then be able to claim back any New Zealand GST costs in making zero-rated supplies.

Another change that has been made is that offshore suppliers will be required to determine whether a customer is a New Zealand resident, on the basis of two non-conflicting pieces of commercially available evidence of residence. So we have to prove here that someone actually is in New Zealand, for GST purposes. Those sorts of rules are useful.

The Commissioner of Inland Revenue has got some discretion when working out whether someone is genuinely in New Zealand. I do know, from some of the work that was put in front of us at the select committee and from the reading that I have done, that those suppliers at the other end of the chain—the Amazons, the Apples, and so on—feel that sometimes with some jurisdictions it is quite hard to establish exactly where somebody is, particularly now around the way in which telephone numbers can transfer across borders. So the idea that a billing address and a country code of a mobile phone SIM card are required to be able to establish whether or not somebody is actually resident in New Zealand is important. It is less of a problem in New Zealand, I suspect. I do not think New Zealand phone numbers are used in quite the way that some other phone numbers are, but that is an important aspect of deciding whether or not somebody falls under the provisions here.

If a GST-registered business is inadvertently charged GST it will have to seek a refund from the non-resident supplier. However, if the payment for the supply is $1,000 or less, the non-resident supplier will have the option to provide a tax invoice to the purchaser to allow them to claim a reduction rather than to refund the GST charged. This was raised in the committee by some submitters as effectively being a base threshold for involvement within this regime, and again we were happy to accept that as providing the appropriate level of compliance burden.

As I said, the Commissioner of Inland Revenue does have the discretion to require a person to register and pay GST in cases where the person provides false or misleading information about themselves in order to avoid GST, if the GST amount involved is substantial or the behaviour is repeated. There have been concerns, again, about where people appear to have a company that is based in New Zealand but, actually, they do not. This has not yet become a major issue, but it could if somebody was genuinely working very, very hard to avoid their GST obligations. We need to find a way, and the committee felt that the Commissioner of Inland Revenue deserved a level of discretion to be able to deal with that.

There are a series of things in here that are useful and that will make the system work for tangibles, but I just return to the point that that is only half the story—in fact, it is less than half the story because it is the movement of tangible goods that has the biggest impact on New Zealand businesses. There are good, solid retailers across New Zealand that are struggling to compete with people because they are not being treated the same way. To me, that is a fairly basic principle of what our job in Parliament is: to set the rules so that there is as level a playing field as there possibly can be.

The Government is right in bringing forward a bill that makes that playing field level for those who supply intangible goods—digital goods. It is right to do that. But it has completely let down those who work hard every single day in the retail sector of New Zealand by not doing the same thing for tangible assets. It is not as hard as the Government is making out. This can be done with the appropriate thresholds. We always accept that there will be a threshold below which you do not go because compliance costs are too difficult, but at the appropriate thresholds we could be supporting New Zealand small businesses today through having a piece of legislation that gives them the same GST treatment as their counterparts overseas. Government members might want to stand up, take a call, and tell us why they have not done that, because in the absence of someone explaining it, we have a piece of legislation here that is letting down a group of New Zealanders.

It is a pleasure to rise, actually, in support of this part of the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill. As I have said before, there are good parts to this bill, and this is one of them. Part 3, “Amendments to Goods and Services Tax Act 1985”—we absolutely support its intent, but, as noted by several speakers on this side of the Chamber, it does not go far enough.

Why do we say that? New Zealand First and I acknowledge that peers all across the Committee will have been consulting with businesses. We know that businesses have been waiting for a long time—probably 9 years, to be fair—for this Government to actually act to level the playing field to ensure that small to medium sized enterprises in New Zealand, in particular, are able to compete with big business from overseas. That is, essentially, the summation of the competition game we are talking about here. We are talking about small to medium sized enterprises that are suffering based on the fact that they must comply with their GST obligations, whilst those predominantly large overseas international corporates sell their goods into New Zealand, and for the last 9 years—as a random selection of time—those corporates have not been required to pay their GST obligations.

The submissions to the Finance and Expenditure Committee were very clear and consistent. Each and every submitter who spoke on this part of the legislation said that “It was past the time to do something. We are grateful for what you have started to do for small to medium sized businesses in New Zealand.” So New Zealand First could not agree more with what I would class as kind of like the first step in part of a solution, because, as has been noted before—and I cannot say it emphatically enough—this is not the whole solution. It does not go far enough, and the arguments as to why we should not implement GST on all goods and services from merchandise traders, and tangible goods as well as these intangible, or—what is it called—“cross-border ‘remote services’ provided to New Zealand-resident consumers.” are half-hearted.

A classic example is when I go and download a CD from some online music store. [Interruption] Download an album—thank you, everyone. There we go. This is remote services—

💬 Kris Faafoi: I thought you were old school.

—I am old school—to New Zealand residents, and we are obliged to pay the GST. But if you buy the CD and get it mailed to you, for some reason you are not obliged to pay the GST on it. It is nonsensical. It makes no sense, and so—

💬 David Bennett: Get a gold card and you won’t have to pay anything.

Good idea—get a SuperGold card and you might get a discount on it. Thank you, Mr Bennett. We need to apply GST to all goods and/or services—intangible or tangible merchandise—that come into the country.

The Government, for some reason, has put up an argument around insufficient funding for the Customs Service, or it not being geared up adequately to address the issue, but we were told by Retail New Zealand, for example—it was only one group that put the numbers in front of us—that the top 20 online providers in terms of online stalls around the world, offshore international corporates, account for 86 percent of New Zealand activity in terms of purchasing online. What we were further told is that those companies are required to comply with GST or VAT obligations in many diverse parts of the world, so they have point-of-sale software systems geared up, ready to go, to implement GST on intangible and tangible goods. They literally have to click a button and that practice of applying GST to the sale of goods to be shipped to New Zealand is enacted. At the point of purchase, a New Zealander will pay the GST component. The offshore entity will account for that in its accounts and make its GST obligations paid, because all of them, as all in the room will know, are above that $60,000 threshold. So companies are there, they are ready to do it, and the arguments against it are not sound.

This is a short call on Part 3 of this bill, which refers to GST. GST is a very good way of collecting tax for the Government because it is broad-based, there are no exemptions, and it is a disincentive to consume. It taxes those who consume for goods and services, so it encourages, in other words, people to save and invest, which is, of course, why GST was increased from 12.5 percent to 15 percent at the time. Of course, it enables the Government to reduce direct taxes, which is essential if you want people to work harder, earn more, and become more productive.

So I just wonder what might happen once we see the universal benefit that is proposed by the Opposition. I wonder where GST might go to if we all got paid $11,000 on the day.

I would like to come to the bill, which talks about the goods and services tax relating to cross-border services and intangibles, with the refinement in the Finance and Expenditure Committee to make it a little bit easier in regard to people who provide services on a collective basis. I am talking about insurance, where you might have a group of people in a country or around the world supplying insurance to a base of people in New Zealand. Prior to the select committee process every one of those suppliers would have had to register for GST and collect and pay GST. It has been a positive improvement in the select committee where those offshore people can use an agent and be represented by one entity, so enabling the tax to be collected by one agent and returned to the New Zealand Government. That is a very positive improvement.

The other positive improvement through the select committee that I would like to mention is around the choice of zero rating for those offshore companies that are dealing with New Zealand companies that are GST-registered, obviously, in New Zealand. That offshore company can automatically say “We are to be zero rated and, therefore, there’s no need to collect any tax.”, because there is no tax on a GST-registered business in New Zealand. We are aiming only to collect tax that would otherwise be paid by consumers. This is very much focused on the New Zealand consumer who purchases these intangible goods and services from offshore suppliers.

The Opposition talked about some discussion around tangible goods. It is not true that tangible goods are exempt. There is GST taxed and collected at the border. I think the Opposition is referring to the threshold that applies to tangible goods, so there is discussion. Of course, if you had a zero threshold or a very low threshold, that would be a loss-making venture for the Government because of the transaction costs that are involved in that work.

Of course, there is work to be done on the tangibles, but that is not part of this bill. This bill focuses on the intangible services, and that is only going to be growing as we purchase more and more Netflix, online films, and data. More and more data is going to be travelling this way, and this is a very simple way of collecting what is, quite rightly, GST that is paid by the New Zealand consumer and is currently not being collected. As a result of this bill, it will be collected. This is a positive approach to GST legislation. Thank you.

I rise to take a call on Part 3 of this piece of legislation, the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill. Before I look towards a specific clause I do want to just point out one thing that the previous speaker, Alastair Scott, said. I am going to have to look back at some of the media reports at the time when the National Government increased GST from 12.5 percent to 15 percent, because I did not see it pushing very hard that GST had to go up to incentivise savings. I do not remember that being one of the John Key lines—“We need to increase GST so more Kiwis will save.” I will come back to the Committee and see how that Google search goes for how many times the Prime Minister or the Minister of Finance said that GST had to go up so Kiwis could save more. “We do not want people to spend so much”—God forbid we go out there and buy food—“so GST has to go up from 12.5 to 15 percent.” That was what the member who just resumed his seat said.

The CHAIRPERSON (Lindsay Tisch): Yes, well, come back to the bill now.

I do want to go to clause 48 of the bill—it is something that no one else has raised—and subclause (1), which inserts a new section 5(10B) in the Goods and Services Tax Act. I think the Minister in the chair may take some interest in this. For the benefit of the Committee, that says: “For the purposes of this Act, when a person who is resident in New Zealand pays an amount of money to participate in gambling or in a prize competition through a supply of remote services”—which have already been described in this debate—“that are physically performed outside New Zealand, the payment is treated as a payment for a supply of services by the person who conducts the gambling or prize competition, as applicable.”

In English that means that if someone resident in New Zealand were to go and gamble on a race on an online betting site based in Australia or in the UK, currently, my understanding is there is no GST charged on that bet. If they were to use their phone and place a similar bet on a race here in New Zealand, they are charged GST. So there is a disparity between the experience with the New Zealand TAB, which we all know as a place to go and put a bet on, and overseas betting websites that take bets from New Zealand.

There was a submission from the New Zealand Racing Board—and I think this is a good part of the legislation—where it talked about the imbalance there, and some revenue that the Racing Board could be missing out on. If I can turn to the submission from the Racing Board, because I think it is a good one, point 4.1 said that the Racing Board estimated that New Zealanders are betting $58 million annually—and that is 15 percent of the total betting expenditure by New Zealand—on overseas websites. It went on to say that “The New Zealand community receives no benefit from this activity,”—because all that money goes overseas, there is no GST, so none of it comes back to New Zealand—“but does incur any costs associated with problem gambling.” It went on to say that it has calculated that the loss of GST revenue on that $58 million could be close to $8 million. So the forgone revenue from not charging GST on bets placed on overseas gambling websites could be close to $8 million, which the Government would miss out on.

The Racing Board believes that if that money went back to New Zealand, then not only would there be, obviously, that $8 million for the Government in revenue but also sports—the likes of rugby, rugby league, basketball, and cricket, which do allow sports betting on their events—would get an additional $5 million of that $58 million because the Racing Board pays them a fee on those events. The racing industry itself would get close to $40 million more if that revenue was staying here in New Zealand, which, I think, within this piece of legislation, is a good thing. It is my understanding that GST will now be charged on betting on overseas websites. The Racing Board went on to say later on in its submission that GST was a factor in this differential in competitiveness and that “In this respect NZRB is no different to any other retailer in suffering a competitive disadvantage in being required to charge GST while offshore providers do not.”

I think that this is a good addition and a good change to the piece of legislation, because it does give that New Zealand entity—the TAB or the New Zealand Racing Board—the ability to take away that competitive disadvantage that it is experiencing with the leakage of the betting money going overseas. It is not just an issue around GST. I think they are now predicting that it is somewhere around $500 million that we could lose over the next 5 or 6 years from the sports betting industry itself—and a big chunk of that, obviously, is in the racing industry—if we do not attend to the issue of leakage from New Zealanders betting on overseas websites.

Can I turn now to the other issue around retail in general that has been raised by other members on this side of the Chamber. I am a bit of a laggard. I like to see and feel things when I buy them from the shop. I do not buy a lot online, unlike Fletcher Tabuteau, who, I believe, downloads his CDs online. I do not know how that happens—maybe he has got one of those 3D printers and that is how he does it. I do not do a lot of online shopping. I like to support local business and make sure that I can see things and that they fit. Or books—like my colleague Grant Robertson here, I like to hold the book. I do not like to have a tablet or something to read the book.

I think that this piece of legislation that we see here today is a start, but it misses a trick because it has not gone far enough. I think Retail New Zealand, in its submission, made that point strongly, in that, yes, we have made a start with these intangible goods or intangible services—the likes of Netflix. I think that the likes of Spark will be happy because its alternative, Lightbox, was charging GST, and, again, like the TAB example—that puts it at a competitive disadvantage to the likes of Netflix, not only with its content—which has arguably a bigger range, so there is a competitive advantage there, but also with its pricing. It is having to price with a GST component worked into its pricing, which was not so for the likes of Netflix.

My mother always was a good gardener. She said that if you start a job, do it properly. That is why she never let me do the garden, because I would never do it properly. I think that we have got another example of this here, in this piece of legislation. It is a good start, but we have not gone far enough to make sure that we are looking seriously at the issue around the tangible goods that could be picked up from online purchasing.

I pick up on the point that many other people on this side of the Chamber have made, which is that online purchasing has worked to the detriment of retail—certainly in my area of Mana, where I think we have seen some retailers really struggling on the street now, because people are looking offshore because the range and the price may be better. Retailers may have to deal with that, and look at how they compete product to product, but when you are looking at a 15 percent price differential, that is hard to go up against. I think that is probably why you will see an increase in the number of people like me—I might have to start looking at shopping online as a more serious option.

But I think that we need to cut those small to medium retailers a break, as was submitted by Retail New Zealand, and say that if we are going to start this process, let us do it properly and not just take the low-hanging fruit of the intangible services, which is contained in this piece of legislation. Let us do it properly and look at how we deal with this issue to make sure that small businesses that do want to set up in our cities and in our towns do not have a massive disadvantage there. I would like to maybe ask a question of the Minister in the chair, Nikki Kaye, about what work has been done and how much priority this Government will put on that continuing work—which, I think, is the hard stuff, instead of just concentrating on the easy stuff here, which is the intangibles—to make life better or easier for those retailers in our small towns and in our cities.

I just want to build a little bit on what Mr Faafoi said in his first contribution. It is generally recognised that GST should apply evenly across all consumption. GST is what they call, basically, a tax on domestic consumption. There is a destination principle, which means that you tax the good or the service in the country within which it is consumed. It makes sense; we all understand that. That is why this tax has been brought in, and this is why we do have such a problem with the non-taxing of tangibles when we think we could have gone a lot further.

One of the interesting things that the Inland Revenue Department (IRD) commented on—it said: “The proposals could impact on the level of competition by discouraging offshore suppliers from entering or continuing to supply to the New Zealand market. However, this impact may depend on the extent to which compliance costs are imposed on offshore suppliers and the extent to which consumers alter their purchasing behaviour in response to the change.”

I do not know whether that has been put in as an advantage or as a disadvantage. I would say that if this sort of law encourages New Zealanders to actually purchase domestic intangibles, which is what we are taxing here, then surely that is not necessarily a bad thing. What we absolutely want to do, I would have thought, is to encourage New Zealanders to purchase domestically. In fact, as mentioned, one of the principles about this is fairness and equity. The IRD talks about fairness and equity a lot.

One of the things that came up a lot in the Finance and Expenditure Committee was the effectiveness and fairness of this option. We talked long and hard about this. One of the big questions, I suppose, is: would offshore companies actually pay this? How could we be sure that a Netflix or an Apple, or any other large supplier—officials reckon it is about a hundred companies—would actually comply? The interesting thing is that when we looked at overseas examples, we were told that particularly large international suppliers account for the majority of these cross-border services. I think that if we think of Apple and downloading iTunes etc., that is probably right.

We were told they have a willingness to comply, and we were told that for these suppliers, failure to comply with their obligations would pose a significant risk to their reputation, which, I suppose, could be right. But it is an interesting comment when you consider that the Googles of this world—and Facebook and Apple—do not pay any tax anyway. They do not seem to care that their reputation may be sullied because they do not pay tax in a country, because they live on the strength of their brand. They have all got massively valuable brands, and it is why they can get away with paying no tax.

Where this sort of fell over was Starbucks in the UK, when it was actually shamed into voluntarily paying more tax because there was a consumer boycott of its stores. That is the power, I suppose, of consumer action. But I doubt—and I could be wrong here—that companies like Apple, like Facebook, and like Google really care about their international reputation in New Zealand on whether they pay tax or not. That may change when a lot of the OECD work on base erosion and profit shifting comes to fruition, but at this point in time I think what they care about is the goods and sales that they can sell into the country.

I would like to talk about the impact of this and some of the underlying data around it. There is an acknowledgment—and I think it is fair enough—that because of data limitations it is not possible to accurately determine how many offshore suppliers may be required to register and return GST, but from experience in similar countries, the IRD has calculated it is probably around about a hundred offshore suppliers that may register for GST. Again, owing to the data limitations, we just do not know the value of offshore purchases and how much money this will bring in or how much we are missing out on. Again, the best estimate of the IRD officials is around about $270 million of purchases. It is quite a lot, when we think about it. Those are purchases of services and intangibles. We are not talking about tangibles here; just online stuff. The estimate means that there is around about $40 million of GST that is forgone in these purchases, and, again, there is an estimate that online purchases have grown by about 10 percent. Is it not interesting? We think that there is $40 million in forgone GST, and this is only on intangibles. Imagine what it would be if we charged GST on tangibles. I think you would find it would be at least double that.

I move, That the question be now put.

In many ways, my contribution picks up from where Stuart Nash left off. It is perhaps a little unusual what I am going to do, but I am going to focus this contribution on one particular submission, because I think it is important that it is on the record of the House, and the Minister in the chair, Michael Woodhouse, may have something to say about this.

Three options were considered of how to implement the GST on intangibles, and the one that was the officials’ option, which is what we have now got in the legislation, is what they call offshore supplier registration. So this is, effectively, that the companies we are talking about are registered for GST and it puts the onus, in a sense, on them. It deals with them by means that are appropriate and are used by other countries. In the regulatory impact statement it talks about the European Union, Norway, South Korea, Switzerland, Japan, and South Africa, which adopted this kind of option. They register and they return GST if their suppliers are over the $60,000 mark, and it is endorsed by the OECD guidelines. But other options were considered, and, in particular, the one I want to refer to was what was option three in the regulatory impact statement—that is, the question of whether there could be a payment-based GST collection system.

I want to say at the outset that I am not necessarily advocating for this, but I do think it is an option worthy of some consideration. Essentially, what is proposed there is that under a payment-based GST collection regime, when remote services are supplied the supplier does not actually necessarily have to be involved in the collection of the GST on behalf of New Zealand, in this case. Instead, you could actually use the bank or the payment supplier, if it was not a bank—if it was a sort of a PayPal or something like that—in the country where the person is resident, and it would add the GST to the value of the incoming transaction. How that would, effectively, work is it would debit the GST amount from the person’s bank or credit card and retain the GST information with the transaction for future reference. Pretty much all of these purchases are now made using a credit card online, and, obviously, as the GST is collected, it would be forwarded on to the Inland Revenue Department (IRD) using the existing mechanisms that the bank and IRD have for working together. This submission was put to the Finance and Expenditure Committee by Miles and Associates Ltd, and I just want to mention, in the interests of transparency, that it was the organisation that came to us and put forward this idea.

There are some immediate benefits that are easy to think about, which are that it is a simplified design, it does not require reregistration all the time, it uses the mechanism that we all know is used in the way that purchases are made, it simplifies the overall approach that is being taken, and it probably captures an increased amount of revenue, potentially, because the registration process does mean that some suppliers will not be registered. In my earlier contribution I talked through the fact that there are fines involved for people who do not register and that the Commissioner of Inland Revenue can chase that up. But, again, you do not know what you do not know, and it may well be that some people will slip through the cracks. So having a payment-based approach for implementing the provisions in Part 3 would potentially add to the amount of revenue that people could get.

There are no additional costs to New Zealand businesses that are exporting goods and services going the other way if you adopted this regime across the board, and the seamless handling of goods—you can expand this out to the tangible sector more easily as well, which is another point that many people would like to see happen. It creates a neutral set of relationships between businesses, if businesses are importing goods, by putting it only in the hands of the payment providers.

I am not saying it is simple and I am not saying that it has even really been tried anywhere else, but it is the kind of option that as we look to the future of how we are going to create the level, fair playing field for taxation in New Zealand, we should be considering. It was a little bit unfortunate, to my mind, that the submitters had, in fact, already submitted when the IRD’s discussion document came forward. The committee did not consider that submission in detail, and I just want to put on the record that I think it still deserves consideration.

I move, That the question be now put.