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Australia plans to make Netflix and other overseas-based online sellers of ‘intangible services’ pay GST (Good and Services tax).

In Joe Hockey prepares ‘Netflix tax’ BRW reports:

The cost of downloading movies, music, books and other media from overseas providers such as Apple and Netflix is set to jump by 10 per cent after federal Treasurer Joe Hockey and his state counterparts agreed these services should be subject to the GST.

Hockey told BRW the tax would be: “easy to administer and will raise billions in extra revenue”.

GST more important in New Zealand

If Australia pulls it off, there are strong arguments for New Zealand to follow.

Above all, GST is an important source of government tax revenue. In New Zealand the rate is 15 percent and GST accounts for roughly one-quarter of the total government tax take. Australian GST is 10 percent and the tax accounts for about 12 percent of revenue collected.

While forcing overseas suppliers to charge GST will bring in some extra revenue today, it will stop local suppliers from moving their businesses overseas to avoid the tax in future.

GST was first introduced in New Zealand by the Lange Labour government in 1986 as part of wide-ranging economic reforms. It has the advantage of being more efficient than other taxes, at least from the government point of view.

I’m a tax collector, you’re a tax collector

In part that’s because businesses have to act as the tax collector. But the real advantage of GST in the early days was that it was hard to avoid.

That has changed with online shopping where New Zealand consumers can bypass GST by buying direct from overseas. There’s a NZ$300 limit, mainly because the cost of collecting smaller amounts makes it uneconomic.

The mechanics of charging GST on physical goods is one thing. Clipping the ticket on sales of digital goods like MP3 files and streamed TV is technically a lot easier. Netflix has already told the Australian government it can, if asked, collect the tax.

Local TV suppliers

Forcing overseas suppliers to charge GST could^[1] be good news for local online streaming TV providers because they have a cost disadvantage compared to GST zero-rated overseas rivals.

It won’t make much difference to the economies of scale that global retailers can achieve, but it could give local stores a little relief.

No doubt local streaming TV suppliers like Spark and Sky will be watching Australia’s action closely.

When it’s handy having a big, relatively powerful neighbour

New Zealand is a small country, far too small a prize for companies like Netflix to worry about.

If we had unilaterally decided to impose taxes on the likes of Netflix and Amazon, they might just decide to stop doing business here. It wouldn’t be worth their while to handle the necessary paperwork, let alone any code changes needed on their systems.

Australia is a bigger prize. If they have to make changes to keep the rivers of gold pouring in from Australia, they can do the same for New Zealand at no extra cost.

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[1] It could be good news so long as customers don’t decide to buy VPN or other geo-block bypassing services then subscribe directly to the US Netflix service. There are heavy-handed legal moves under way to block this practice but that can backfire in other ways.

What an Australian Netflix tax means for New Zealand

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