A new bill proposes significant changes to the goods and services tax treatment of the gig and sharing economy in New Zealand. Eugen Trombitas of PwC NZ looks at the details and some practical issues to note.
New Zealand goods and services tax (GST) is once again in the global headlines. The Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill (No 2) was introduced on Sept. 8, proposing to:
- Implement the Organisation for Economic Co-operation and Development’s information reporting and exchange framework for activities being facilitated by digital platforms in the sharing and gig economy; and
- Collect GST on certain accommodation and transportation services provided through electronic marketplaces.
The main focus of this article is on the GST changes relating to the gig and sharing economy. The draft law provides, from April 1, 2024, to extend the GST rules for electronic marketplaces (EMPs)—that currently apply to remote services (from Oct. 1, 2016) and low value imported goods (from Dec. 1, 2019) —to apply also to taxable accommodation, ride-sharing, and food and beverage delivery services provided through EMPs.
The existing rules bring in annual GST in excess of NZ$300 million ($184 million). Officials estimate that the New Zealand gig economy is close to NZ$2 billion (regulatory impact statement, finalized May 25, 2022) so the new measure is likely to add significant new GST revenue.
Key Features of New Platform Rules
The current EMP rules will be expanded to apply GST at 15% to taxable accommodation, ride-sharing, and food and beverage delivery services that are provided through EMPs. In summary, from April 1, 2024:
- “Electronic marketplaces” (as defined) would be considered the supplier of the listed services for GST purposes and be responsible for collecting and returning GST to Inland Revenue.
- For the underlying supplier, the supply of listed services sold through EMPs would be considered as made to the EMP and zero-rated for GST.
- For the purposes of the GST recoverability by the underlying supplier:
- Where the underlying supplier is already GST-registered, they would be able to deduct input tax on their expenses in the usual way.
- Where the underlying supplier is not registered for GST, they would be entitled to receive a flat rate credit of 8.5% of the value of the supply; practically the EMP would have administrative obligations here as it would report the credit in its GST return and have to pay it out.
- In respect of facilitation services, the bill does not contain any relevant amendments. Therefore, EMPs would continue applying the existing GST rules to determine whether their facilitation services are standard rated, zero-rated, or non-taxable. More clarity is likely needed in this area.
- There are some possible exceptions to the above if there is a “large commercial enterprise” (as defined) and that underlying supplier already accounts for GST on the accommodation.
Global Context
New Zealand is not alone in considering VAT/GST and the gig economy. The New Zealand development follows the work of the OECD (report on The Impact of the Growth of the Sharing and Gig Economy on VAT/GST Policy and Administration, April 2021) and the European Commission (VAT in the Digital Age, March 2022).
Although the OECD work suggested various options (including educating sellers and information sharing), New Zealand’s draft rules are wide and will be based on a full GST liability model. New Zealand’s closest neighbor, Australia, is opting for an information sharing model, yet to be implemented. Other countries, like Canada, tax platforms in a targeted way (short-term accommodation) and allow certain facilitation fees to be zero-rated. India applies GST to ride shares and food delivery services purchased through apps.
At the time of the original consultation in March 2022, many of those submitting comment felt that New Zealand should adopt a wait-and-see approach to allow more time for the full impact of the sharing economy to be better understood.
Practical Aspects
There are a number of practical issues to note, especially in relation to the boundary issues inherent in the draft rules and the potential systems changes.
- Canada allows accommodation platform operators to not pay GST if the underlying seller is GST-registered; New Zealand will allow this for large scale accommodation providers, i.e. those who list more than 2,000 nights’ accommodation through an EMP in a 12-month period.
- The facilitation services provided by EMPs are subject to the remote services rules and any double taxation should be switched off (that issue has not been resolved in the draft law).
- The definition of “electronic marketplace” is wide, but some online marketplaces may not be caught.
- The definition of “listed services” is broad; however, exempt accommodation is excluded. In addition, services closely connected with the listed services are included (e.g. cleaning).
- The draft law only applies to “listed services” as defined, but there may be issues with package deals (or services) some of which are within the definition and some not.
- Special rules apply to vouchers, loyalty programs and discounts and this needs to be factored in to any system changes.
- The GST law will be amended to deem separate supplies from the underlying seller to the marketplace (if the underlying seller is GST-registered), and if the underlying seller is not GST-registered the marketplace will need to account for output tax (at 15%) but can claim the flat-rate credit (of 8.5%) that must then be passed on to the underlying seller.
Market forces will dictate how underlying sellers will make supplies in the future and the impact of prices on account of the new rules.
Other Measures in the Bill
The bill also proposes to implement an OECD information and reporting exchange framework in New Zealand that would require New Zealand-based digital platforms to provide Inland Revenue with information annually about the consideration sellers on those platforms received from relevant activities. This measure would take effect in New Zealand from the 2024 calendar year, with the first information reporting obligations (and exchange) occurring in early 2025.
Concluding Comments
The New Zealand changes come at a time of growing obligations such as DAC7 being placed on platforms globally, emerging information reporting in other countries, and, for some platforms, the impact of payment processing reporting. In relation to VAT/GST, it is vital for regulators to ensure that there is global consistency with any VAT/GST rules relating to the gig and sharing economy.
It is expected that submissions on the bill will be due by the end of November 2022. Impacted parties should consider submissions on the substantive measures and practical refinements.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Author Information
Eugen Trombitas is PwC’s global digital indirect taxes leader.
The author may be contacted at: eugen.x.trombitas@pwc.com
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