Indirect Taxes in 2021 and Beyond: Part 1 — New Zealand Review
2021 has been an important and rapid year for the evolution of indirect taxation in New Zealand. Part 1 of this article will recap the main developments in the goods and services tax (GST) and customs.
The main business and revenue highlights for the fiscal year ended June 30, 2021 were:
- The New Zealand Customs Service (NZCS) processed 16.4 million import transactions and 5.7 million export transactions, an increase of 21.5% for imports and 1.6 % for exports compared to 2019/20. This is due to an increase in low-value imports of less than NZ $ 1,000 ($ 680) – which accounted for 90% of all imports in 2020/21 – due to the growing popularity of online shopping.
- NZCS collected NZ $ 14.9 billion in revenue, down 1.5% from the NZ $ 15.1 billion raised in 2019/20. This drop is largely due to the impact of the Covid-19 pandemic on trade. (Breakdown by type of income collected: GST, 65%; customs duties, 22%; and excise duties, 13%.)
Over the coming year, the NZCS has indicated that it will focus on:
- shift from economic recovery from Covid-19 to supporting trade and economic growth;
- support other 2021 Asia-Pacific Economic Cooperation (APEC) meetings (note that New Zealand hosted the 2021 APEC Forum meetings and the NZCS chaired the sessions of the Customs Procedures Sub-Committee );
- pilot the JEVS (Joint Electronic Verification Scheme) self-service system with China, streamline self-reported origin data under the enhanced NZ-China Free Trade Agreement.
When importers have royalty agreements in place, it is important to consider whether the royalty should be part of the declared value for duty. Under New Zealand law, if a royalty or license fee is a condition of the sale of goods for export to New Zealand, the amount of the royalty must be added to the customs value.
After two decades without new case law in this area, several cases are being processed in the justice system, and verdicts are expected shortly. Importing retailers argue that the royalties are unrelated to the price of the goods and relate to issues such as store layout, craftsmanship, intellectual property, business experience and marketing.
NZCS argues the opposite and asserts that the royalty adjustment rule applies broadly and that the amounts are part of the price of the goods.
The cases also highlighted that importers must determine whether certain adjustments (in the value of goods after importation) must be disclosed to the NZCS either voluntarily or under the provisional value regime.
International trade agreements
In November 2021, New Zealand ratified the Regional Comprehensive Economic Partnership (RCEP). RCEP will come into effect in January 2022 and will be the largest free trade agreement in the world. The ratification of the RCEP is a positive development and comes at the right time. The agreement will help the AsiaPac region to position international trade using the new platforms provided by RCEP. The details of RCEP were covered in the author’s December 2020 article for Bloomberg Tax.
On October 20, 2021, New Zealand and the United Kingdom reached agreement on the key elements of a new comprehensive and progressive high-quality free trade agreement (FTA). This tentative agreement does not create any legally binding obligation, as work continues to finalize it. Once the text is finalized and legally verified, and the national approval processes are completed, arrangements will be made for the signing of the agreement.
Considerable work has been done to pave the way for the elimination of virtually all tariffs, the impact of climate change on trade, the recognition of Maori economic interests, the promotion of e-commerce and digital commerce. and streamlining customs procedures, to name just a few areas.
These developments are particularly important given that trade was called a ‘pillar’ in the APEC Leaders’ Declaration of 2021 (November 2021) in the context of the recognition that multilateral trade rules have an important role to play. play in the economic recovery.
Goods and Services Tax
On September 8, 2021, the government introduced the Taxation Bill (Annual Rates for 2021-2022, GST and Corrective Measures) (the Bill), which is expected to be enacted by March 31, 2022. It contains various policy and technical changes to the GST, including the exclusion of crypto-assets from the GST, modernization of GST billing rules and a series of technical changes relating to land transactions, operating businesses, consolidation of the GST and the distribution of the GST.
The bill proposes to exclude crypto-assets from the GST base, which will prevent the potential for multiple taxation and help reduce distortions in the development of new products and investment activities. The application date is proposed to be January 1, 2009 (when the first cryptoasset, Bitcoin, was launched).
Positively, the bill also confirms that GST on costs associated with issuing crypto-assets with characteristics similar to traditional securities (security tokens) can be deducted by a GST-registered company (with a start date of April 1, 2017).
A broad definition of “crypto-asset” is proposed and the supply of crypto-assets will not be taxable or exempt for GST purposes. The definition of “cryptoasset” refers to a numerical representation of the value that must be fungible. Other crypto-asset-related services, which are not in themselves supplies of crypto-assets, such as mining, providing crypto-asset exchange services, or providing advice, will continue to do so. ” be subject to existing GST rules.
New Zealand GST law makers are still working on the final form of the law. At this point, non-fungible tokens (NFTs) do not fall under the proposed definition (of cryptoasset), and ordinary GST principles will apply to NFTs.
In some cases, cryptoassets and tokens have dual (and often multiple) characteristics: Sports tokens or fan tokens provide sports fans with many benefits, including the ability to vote on sports club matters. (similar to a membership), the right to digital images and access to digital video clips (or statistics) on the basis of a defined menu. The main aspects to note are:
- If tokens are eligible to vote (i.e. work analogously to stocks), should they be exempt from GST?
- Even if tokens give voting rights, if they also confer rights to underlying goods or services, should GST apply without exemption (for at least part of the value)?
- NFT providers, as well as platforms involved in NFT exchanges, should take into account the global VAT / GST remote services rules, as many consumers are located abroad.
Modernize tax invoicing rules
The current rules regarding tax invoices have not changed much since their introduction in 1986. The bill proposes changes to these rules, aimed at modernizing the invoicing requirements to bring them into line with modern business record keeping practices. electronic invoicing initiatives and electronic record keeping. The final form of the law is still being worked out through the submission process.
Main areas of interest of domestic revenues
During the year, Inland Revenue focused on GST registrations where there is little or no taxable activity, nonprofits, and GST rebate claims.
A large number of draft interpretive statements and technical decision summaries have been published, covering a number of areas such as residence, agency, rental and GST claims by importers.
GST digital developments
New Zealand has introduced an offshore provider / platform model and taxes remote services since October 1, 2016 and low value imported goods (LVIG) since December 1, 2019. Both models have been very successful for the government. and compliance is relatively easy. The number of remote service registrations is around 570 and the number of LVIG registrations is just under 750. The New Zealand rules have been used by other countries as a model.
The next chapter on GST and the digital economy is how to deal with the economy of odd jobs, for example carpooling, food delivery and short-term accommodation.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
Eugen Trombitas is the global leader in digital indirect taxes at PwC.
The author can be contacted at the following address: [email protected]