Netflix, retailers spark online GST debate

nbrlogoThere was much weeping and gnashing of teeth this week as Netflix launched in New Zealand.

This article was first printed in NBR on March 27, 2015

Netflix NZ is substantially cheaper than local video streaming rivals, thanks in part to not charging GST. Spark, which owns Netflix clone Lightbox, was particularly vocal on the tax issue (see

Retailers in general are also outraged and again calling for GST on goods ordered from overseas online. Briscoes Group boss Rod Duke says the current system is not fair to New Zealand retailers.

Prime Minister John Key said this week that online shopping is considerably affecting the government’s tax take.

“It is not so much a matter of clawing back revenue but base erosion – the ability to actually lose a huge amount of revenue because people are increasingly going online is something that eventually not only we need to deal with but every country does,” the PM said.

Meanwhile, Revenue Minister Todd McClay says he had asked officials to look at what other countries are doing to collect more GST.

Introducing GST on online sales will never work. This is just another example of old dinosaur thinking meeting modern disruption.

GST is a dinosaur tax. It’s a pain to calculate, takes up far too much administrative time and it belongs back in the 1970s. Now, there are calls on government by large providers to enforce GST across online sales. Problem is, it can’t be done.

Chasing ghosts

We already have a policy of collecting GST on physically imported goods $400 worth or more. But translating that to online sales would probably be impossible. Technology already allows us to dodge GST. We can register a credit card in the US and buy services from there (or any other country) quite legally. Any move to tag New Zealand credit cards in an effort to capture overseas transactions would result in a huge backlash from banks as customers bought and used international cards.

Virtual private network (VPN) software allows us to represent ourselves geo-physically as being part of any country in the world. As Netflix recently told NBR, there’s nothing it can do to stop New Zealanders accessing its US service (which is the same price but has a lot more content).

Big technology companies couldn’t give a damn. They are not going to do anything that costs them more money and they certainly don’t care about a country the size of New Zealand. In fact, internationally they have been exploring relocating themselves into international waters in an effort to avoid tax. And of course, there is Ireland: that massive sinkhole of tax that is abhorred by governments the world over.

A different approach

What New Zealand really needs to start doing is get ahead of that ball. This constant, reactive legislation to deal with technology is embarrassing and futile.

How do we use new technology to increase our ICT exports? How do we take the same services that we are effectively importing, Netflix for example (and thousands of others), and do the same to the rest of the world?

Why chase a tax that will be a) nearly impossible and b) just annoy people when we could chase the actual real money which comes from exporting our local ICT products?

Why are we not offering tax incentives to large service providers to deliver their services from New Zealand? We pour hundreds of millions into movies, so why not ICT? Why couldn’t we get Netflix or similar to run their operations for Southeast Asia out of Auckland?

The horse has bolted, got on a train, and left for the wilds of Mongolia. Another negative impact to this GST debate would be the fact that government would have to pay a massive GST bill. We know that a mid-size government organisation utilises around 400 cloud services on average, many of them based offshore. Larger organisations will be closer to 800. Collecting GST on money government agencies are paying to use Microsoft Azure or Amazon Web Services feels rather like shooting ourselves in the foot.

No amount of GST will help

The government, in my opinion, still doesn’t get IT. Its policies are heavily infrastructure-based, which, while necessary at a cable level, do nothing to drive ICT forward as a rival to dairy.

If government wanted to achieve digitisation across government, it would relax the rules and let it happen, not put endless roadblocks (here’s looking at you, GCSB) in the way of it. I hear mutterings around town that the GCSB wants to get its sticky fingers on the Department of Internal Affairs’ Cloud Risk Assessment. Wow. If that’s true. Back to the future. Death of progress. Massive slowdown in adoption of IT.

Back to the point: We need to adapt to the disruption and get ahead of the game or risk being a follower. Being a follower in the digital age means that, eventually, we’ll have none of our own ICT product and we will simply be at the whim of the multinationals. We will have an import bill that is epic and the trade-deficit will be crippling. No amount of GST will help.

We need less dinosaur thinking and more freedom and support for ICT to innovate and deliver regardless of the company or government agency.

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