Data First – Tax Next: How Fiji’s Technology Can Improve New Zealand’s ‘Netflix Tax’ (Part 4)

Abstract

This is the fourth paper examining the recent amendments to the New Zealand Goods and Services Tax (GST); amendments that are collectively known as the Netflix Tax. These papers assess the effectiveness of the Netflix provisions, and how they could be enhanced if New Zealand adopted the technology and vision of Fiji’s VAT Monitoring System (VMS). The Netflix provisions were effective, July 1, 2017.

This final paper considers:

(a) the treatment of domestic agents when they are used by remote service providers to facilitate sales to New Zealand customers;

(b) how New Zealand intends to respond to resident consumers who supply false information to remote service providers in an effort to induce those providers into improperly zero-rate transactions, and thereby defeat the GST; and

(c) the treatment of dual status taxpayers, New Zealand residents whose status allows them to enter into contracts with remote service providers either as individual consumers or as business taxpayers.

As before, the primary contrast is the difference between New Zealand’s traditional (statute and regulation) approach to VAT reform, and the technology-intensive approach of Fiji. Both jurisdictions are struggling to deal with the modern economy, but they approach this challenge very differently. These papers come down on the side of Fiji and technology. In the end they observe that what Fiji understands is that code, computer code, is a very effective, cost-efficient, and self-enforcing form of regulation. There is something important to learn about the way that Fiji utilizes “code” in its tax reform.

New Zealand’s residence-based GST has visible difficulties trying to regulate the remote services market with the standard approaches to tax reform. New Zealand works well with the data that it has from residential sources, but it simply does not have what it needs to do the job when the supplies are remote. It needs data in real-time, because the consumption is happening in real-time. In some instances, New Zealand has drafted reasonably complex rules to secure more information. But it is clear that something more, something different, something slightly more radical, and very real-time is needed to come to grips with managing compliance in this field.