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Inland Revenue

Tax Policy

Chapter 2 - Background

New Zealand’s GST system

2.1 New Zealand’s GST is a broad-based consumption tax. It is generally levied at a single standard rate of 15%,[5] and there are very few exemptions.[6] Consumption taxes seek to tax consumer spending on goods and services. New Zealand’s GST system, along with other value-added tax (VAT) and GST systems around the world, is based on the destination principle. This means that goods and services are subject to GST when they are consumed in New Zealand. In principle, GST should therefore be applied to all goods consumed in New Zealand, including imported goods, regardless of value.

2.2 Conversely, goods and services that are exported (and therefore consumed offshore) are generally untaxed. Under the GST rules, exports are zero-rated, meaning GST is charged at a rate of zero percent and businesses can claim the GST back on the cost of their inputs. Allowing exporters to claim back GST on their inputs ensures that GST is not a cost on businesses or offshore consumers.

2.3 New Zealand’s GST system is regarded throughout the world as a model consumption tax. This is because our GST system is very broad-based – it applies to a wide range of goods and services and there are very few exemptions. When GST applies broadly it ensures that consumer decisions to purchase particular goods or services are not influenced or driven by tax considerations. This improves its efficiency and fairness, and provides simplicity.

Current system for low-value imported goods

2.4 GST on imported goods is currently collected by Customs at the border. However, GST is not collected if the total duty value (including GST, tariffs and other duties) is less than $60. This is known as the “de minimis”.

2.5 Ideally, GST should be collected on all imported goods, as these goods are likely to be consumed in New Zealand. The rationale behind the de minimis threshold is to facilitate trade and achieve a balance between the cost of collection and the revenue received. In the New Zealand context, the de minimis was set at a level where it was estimated that the costs of collecting the duty begin to exceed the revenue the duty generates. New Zealand is required to have a de minimis to comply with international obligations.[7]

2.6 Depending on freight costs, the $60 de minimis roughly equates to a parcel worth $400 if GST is the only duty applying. It can equate to a parcel with a much lower value when tariff duty applies or if the freight and insurance costs are high.[8] Tariff duties of five percent or ten percent apply to a range of goods, including some apparel and footwear. Cost recovery charges of $49.24[9] also apply to goods above the de minimis threshold stopped at the border.

Example 1: Current system

Melissa purchases active wear from a large offshore website. She pays $100 (inclusive of shipping). Apparel attracts a ten percent tariff duty where New Zealand does not have a free trade agreement with the country of the goods’ origin. Since the duty on the clothing is only $26.50 (comprising tariff duty of $10 ($100 x 10%) and $16.50 of GST ($110 x 15%), Melissa’s purchase is below the current de minimis threshold. She is not required to pay any duties to Customs on the active wear she purchases from offshore.

The total cost of Melissa’s parcel is $100.

Melissa later purchases a pair of running shoes from the same offshore website with a value of $300 (inclusive of shipping). Footwear also attracts a ten percent tariff duty. This means the total duty owing on Melissa’s running shoes is $79.50 (the 10% tariff of $30 plus GST of $49.50 ($330 x 15%)). This is above the current de minimis threshold. Melissa is required to pay GST and tariff duty on the running shoes. Melissa also has to pay the cost recovery charges of $49.24 to Customs.

The total cost of Melissa’s parcel is $428.74.

2.7 Historically, the majority of imported goods have been imported by commercial entities in consignments above the de minimis. When GST was introduced in 1986, very few final consumers imported goods below the de minimis. Therefore, the compliance and administrative costs involved in taxing imported goods below the de minimis was considered to outweigh the benefits of taxation at that time.

2.8 However, the growth of online shopping and the practice of supplying goods directly to customers have meant that the volume of low-value goods imported by final consumers has significantly increased. Based on a five-year average, volumes are growing at about eighteen percent a year.[10]

2.9 Given the nature of the current methods of collecting GST on imported goods, the growing volume of imported goods has meant the cost of collecting GST on these goods, and the GST revenue foregone, have both increased.

Issues with the current system

Competitive neutrality and tax distortions

2.10 In general, the increasing ability to easily purchase goods and services online has benefited New Zealand. It has given consumers greater access to a wider range of goods and services from around the world, and increased competition in the domestic retail market. Increased competition tends to encourage the efficient use of resources, which can result in lower prices, greater innovation, and better quality goods and services for consumers.

2.11 Despite these benefits, when GST does not apply evenly, it may bias consumer and business decisions, which could lead to unfair and inefficient outcomes. The non-collection of GST on imported goods below the de minimis creates a distortion in the tax system whereby the vast majority of goods valued below $400 that are purchased from offshore suppliers are not subject to GST, while all purchases from domestic retailers are subject to GST.

2.12 The current policy settings place domestic suppliers of goods at a competitive disadvantage compared with offshore suppliers that are able to transport low-value goods directly to their customers without the imposition of GST. This is having the greatest impact on domestic sellers that provide goods that are similar to goods sold from offshore (or substitutable products).

2.13 There are a number of reasons why New Zealand consumers might purchase goods online from offshore businesses, however, the tax treatment should not be a factor in consumers’ purchasing decisions.

Foregone revenue

2.14 Furthermore, the growth of the online shopping market means the amount of GST not being collected on low-value goods supplied from offshore, but consumed in New Zealand, is increasing.

2.15 Estimating the total foregone revenue on imported low-value goods relies on a number of assumptions, and estimates of the foregone revenue vary. An estimate by Retail NZ, for example, places the total foregone revenue at $235 million a year.[11]

2.16 In the 2015 discussion document, GST: Cross-border services, intangibles and goods, officials estimated the maximum potential foregone GST revenue for low-value imported goods was around $140 million a year. This estimate was derived from survey and credit card spending information.

2.17 Since then, further work has been undertaken by officials using a mixed dataset that includes Customs’ sample data of goods coming across the border. An estimate was calculated based on an assessment of the value of goods under the current de minimis. This work conservatively estimates that the foregone GST revenue for the 2016 calendar year was around $80 million. Assuming a foregone revenue growth rate of ten percent a year, the foregone revenue is projected to grow to $127 million by 2021.

2.18 While it is difficult to estimate the total revenue foregone resulting from the non-collection of GST on low-value imported goods with certainty, it is clear that the numbers are significant and a growing concern for Government.

2.19 Government revenues pay for important public services such as education, healthcare, roads and superannuation. Given that over thirty percent of total tax revenue is collected from GST, an increasing gap in that revenue base becomes a concern for everyone who relies on these services. A shortfall in GST revenue may eventually have to be paid for by tax increases or spending cuts.

International developments

2.20 Following the success of a number of countries’ rules (including New Zealand’s) to require offshore suppliers to collect VAT and GST on cross-border services and intangibles, there has been some interest internationally in requiring offshore suppliers to also register and collect VAT or GST on low-value imported goods.

2.21 On 21 June 2017, the Australian Parliament enacted legislation that requires offshore suppliers of goods to register for GST in Australia, and collect and return GST on their supplies of goods to Australian consumers that are valued at or below AU$1,000, if their total supplies to Australia exceed the AU$75,000 registration threshold for GST.[12] The new rules will come into force on 1 July 2018, one year after the implementation of Australia’s new rules applying GST to cross-border services and intangibles.

2.22 The legislation also required an inquiry by the Australian Productivity Commission on the effectiveness of the rules and other possible models for collecting GST on low-value imported goods. The Australian Productivity Commission completed its inquiry on 31 October 2017 and concluded that the legislated model was the most feasible option at the present time.

2.23 The European Commission indicated in December 2016 that EU member countries would implement a variant of an offshore supplier registration system to collect VAT on low-value imported goods from outside the EU from 2021. The proposals would extend their current collection mechanism for digital services and intra-EU cross-border supplies of goods to include supplies of physical goods from outside the EU.[13]

New Zealand’s current rules for collecting GST on cross-border supplies of services

2.24 Since 1 October 2016, offshore suppliers of cross-border services and intangibles have been required to register, collect, and return GST on supplies they make to New Zealand-resident consumers. When the rules were initially proposed in the 2015 Government discussion document, GST: Cross-border services, intangibles and goods, it was estimated that the Government was foregoing approximately $40 million a year in revenue through the non-collection of GST on these services.

2.25 To date, over 200 offshore suppliers have registered under the new rules. Further, revenue from the GST returns filed by offshore suppliers since the introduction of the rules totals $162 million.[14]

2.26 The success of an offshore supplier registration system to collect GST on cross-border services and intangibles illustrates that such a system is effective and relatively easy to comply with.

An offshore supplier registration system for collecting GST on low-value goods

2.27 To deal with the issues outlined in this chapter, the Government intends to implement an offshore supplier registration system for collecting GST on low-value imported goods. Chapters 3 to 5 of this discussion document outline the proposed design features of the offshore supplier registration system. The Government is keen to ensure that the design of the rules is workable in practice so that compliance costs are kept to a minimum. The proposed rules, therefore, are broadly in line with New Zealand’s current rules for collecting GST on cross-border services and intangibles, and the recently enacted rules for low-value imported goods in Australia.

2.28 At the same time, it is important to ensure that the changes proposed do not adversely affect New Zealand’s current risk assessment and biosecurity processes at the border.


[5] Certain supplies are levied at a rate of zero percent (see sections 11 and 11A of the Goods and Services Tax Act 1985).

[6] The key exemptions are supplies of residential accommodation and business-to-consumer supplies of financial services.

[7] Protocol of Amendment to the International Convention on the Simplification and Harmonization of Customs Procedures (June 1999).

[8] The de minimis does not apply to shipments of alcohol or tobacco products, as excise taxes are required to be collected on these goods.

[9] This comprises two separate departmental levies: Customs’ Import Entry Transaction Fee of $29.26 and the Ministry for Primary Industries’ Biosecurity System Entry Levy of $19.98.

[10] Based on Customs and New Zealand Post data.


[12] See the Treasury Laws Amendment (GST Low Value Goods) Act 2017.


[14] As of 27 April 2018.