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Inland Revenue

Tax Policy

Chapter 1 - Introduction

1.1 The primary objective of goods and services tax (GST) in New Zealand is to raise tax revenue in a manner that imposes the lowest possible cost on businesses, individuals and the Government. To achieve this, GST applies to a broad range of goods and services at a uniform rate of 15%.

1.2 The intention of this broad-based approach is to:

  • reduce the extent to which GST alters consumption decisions in New Zealand by lowering the impact on the relative prices that consumers pay for their goods and services;
  • reduce the extent to which GST distorts production and resource-use decisions in New Zealand. The approach lessens the extent to which GST alters the competitive position of a New Zealand business in both the market for the goods and services it produces, and the market for the inputs it uses to produce those goods and services, by minimising the impact on relative prices in those markets; and
  • reduce the compliance and administrative costs associated with raising GST revenue.

1.3 Key to achieving these objectives is the taxation of the final consumer only − not the inputs and products in between. GST in effect applies only once, through offsetting input credits against taxable outputs. Business-to-business (B2B) supplies are, therefore, in effect, GST-neutral. This avoids taxation cascades, which can result when sales taxes are applied at various stages in the production process.

1.4 Because GST applies to consumption in New Zealand, it taxes both consumption by New Zealanders and non-residents who are consuming goods or services in New Zealand. GST is not, however, intended to apply to non-residents consuming goods and services outside New Zealand.

1.5 The GST system prevents the double taxation of goods and services that are traded between New Zealand and other countries through the “destination principle”, which assigns the rights to tax the consumption of traded goods and services to the country in which those goods and services are destined to be consumed. This means that exports are zero-rated and imports are subject to GST, in the same way as domestically produced goods and services that are consumed in New Zealand.

The problem

1.6 An exception to the zero-rating of exports applies in practice to goods purchased in New Zealand by tourists. While there are schemes in place that enable removal of the tax impost in limited circumstances, tourists who take goods outside of New Zealand do not receive GST refunds as a matter of course. This is because the economic costs of doing so (mainly compliance and administration costs) outweigh the economic benefits. Tourists’ purchasing behaviour has been assessed as unlikely to be altered by whether there is a general refund scheme or not.

1.7 While this may be so for tourists, there may be behavioural effects for non-resident businesses that operate in New Zealand. The destination model generally works well in relation to goods, because they physically pass through customs control and are relatively easy to identify. However, cross-border supplies of services are difficult to monitor because of their intangible nature. Countries generally aim to ensure that B2B transactions are untaxed in these circumstances, in line with the destination principle.

1.8 New Zealand zero-rates some cross-border services and has a registration mechanism which refunds GST incurred by non-resident businesses in many instances. Nevertheless, it is essential that our domestic GST laws relating to services received by non-residents are fair and efficient, and do not impose undue economic costs on New Zealand. We refer to this objective as B2B neutrality.

1.9 Such economic costs could arise if non-resident businesses are deterred from undertaking business with New Zealand because of the lack of GST neutrality in certain areas. Alternatively, New Zealand businesses could face additional constraints when undertaking business overseas because overseas jurisdictions perceive our rules in this area to be unfair.

Aims of this discussion document

1.10 This discussion document focuses on the desirability of cross-border B2B neutrality in our GST system and related matters. It discusses the current registration process for providing refunds of GST incurred by non-resident businesses and considers various options for enhancing or replacing the current approach – while being mindful of the need to balance neutrality and protect the tax base.

1.11 The current prohibition on refunds of GST input tax in relation to exempt supplies (such as financial services provided to non-businesses) would continue. This prohibition is a general feature of the GST rules and therefore applies to non-resident businesses too.

1.12 The following chapters are focussed solely on B2B supplies because of the behavioural effect that excessive taxation may have in that sector. This document does not seek to address issues that have been raised in the public domain regarding cross-border supplies between businesses and consumers, specifically:

  • the desirability or otherwise of a refund scheme for tourists on goods they take with them when they leave the country; and
  • the $60 minimum duty threshold on goods imported into New Zealand (meaning that a consignment of goods of up to NZ$400 value can generally be imported without GST being imposed). A review of this minimum level was recently conducted by New Zealand Customs Service.[1]

1.13 All legislative provisions in this document and references to “the Act” are to the Goods and Services Tax Act 1985, unless otherwise stated.

Summary of proposals

  • That an enhanced registration system be introduced. This would retain the existing broad ability for non-resident businesses to register for GST, but would couple this with rules allowing non-resident businesses to claim input tax in a broader range of circumstances by removing the requirement for the business to be making taxable supplies. This system is considered preferable to either an expanded zero-rating system or a direct refund model. Both of these alternative approaches are discussed in chapter 3.
  • That other measures be considered to provide certainty for taxpayers and to protect the revenue base under the enhanced registration system. Some key features include that the non-resident be registered for GST or VAT (or, if not, be a registered business taxpayer) in their home jurisdiction, that there be a minimum refund threshold and that accounting for GST be on a payments or hybrid basis (chapter 4).
  • That supplies to non-residents of tools used solely in relation to exported products be either subject to GST (which would be deductible under the enhanced registration system) or zero-rated (chapter 5).

How to make a submission

1.14 Submissions on this discussion document should be made by 7 October 2011 and can be addressed to:

GST: Business-to-business neutrality across borders
C/- Deputy Commissioner
Policy Advice Division
Inland Revenue Department
P O Box 2198
Wellington 6140

1.15 Or email: [email protected] with “GST: Business-to-business neutrality across borders” in the subject line.

1.16 Submissions should include a brief summary of major points and recommendations. They should also indicate whether it would be acceptable for officials from Inland Revenue to contact those making submissions and to discuss their submission, if required.

1.17 Submissions may be the subject of a request under the Official Information Act 1982, which may result in their publication. The withholding of particular submissions on the grounds of privacy, or for any other reason, will be determined in accordance with that Act. Those making a submission who consider there is any part of it that should properly be withheld under the Official Information Act should clearly indicate this.


1 See the New Zealand Customs Service December 2010 Issues paper: Review of the de minimis, and subsequent press release by the Minister of Customs at