According to recent plans, gig economy businesses in New Zealand would be required to fully account for and take responsibility for the goods and services tax of the underlying providers on their platforms.
The New Zealand Inland Revenue is drafting a final bill that may set a precedent for tax authorities across the world by drastically altering how the goods and services tax is applied to gig economy businesses.
From April 2024, ride-sharing, lodging, and food and beverage delivery services will be subject to the GST under the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill (No. 2). The September 8 draft bill would also put the OECD's guidelines for information exchange and reporting on digital platforms into effect.
These developments constitute the largest-scale effort by a tax body to expand the application of GST to suppliers of ride-sharing, delivery, and lodging services on internet marketplaces.
Due to GST leakage, according to Peter Scott, tax partner at KPMG New Zealand in Auckland, Inland Revenue has been attempting to put controls on gig economy businesses.
According to Scott, "Their [the tax authority] concerns are around businesses that are operating that should be registered for GST, but are not."
He claims that conducting audits of gig economy providers like Airbnb hosts or Uber drivers has historically proven to be challenging for the Inland Revenue.
All of these suppliers, even those who previously fell below the NZ$60,000 ($33,600) annual turnover criteria for GST registration, are essentially targeted by this proposed legislation.
According to Eugen Trombitas, partner at PwC New Zealand in Auckland, the tax authorities has hitherto ignored the gig economy.
According to Trombitas, "it is super significant because it’s the widest model proposed for imposing full liability for GST on platforms for their underlying supplies."
He claims that regardless of whether the underlying suppliers' firms are registered for the tax, Inland Revenue will demand online platforms to account for the GST of such businesses.
The New Zealand gig economy is predicted to be valued about NZ$1.9 billion, according to the New Zealand Treasury Department's Regulatory Impact Statement: Taxation of the gig and sharing economy, while the measures are anticipated to generate revenues of more than NZ$300 million ($169 million)
"It could bring in as much as remote services GST and low-value goods GST combined. And this platform economy is growing, so it’s not a small proposal," adds Trombitas.
The top online takeout delivery service Menulog in Australia and New Zealand, according to Fran Gallardo, is taking the suggested specifications into consideration.
"As with any bills passed through parliament, we will adhere to any legal requirements and comply with local laws," adds Gallardo.
These ideas also go beyond the bounds of what data platforms may divulge to tax authorities.
For international authorities, the gig economy has brought substantial difficulties. The difficulty of integrating this creative industry into pre-existing legal and economic frameworks has long plagued tax authorities.
The OECD's guidance on tax transparency and information reporting rules has been a significant element in increasing the feeling of urgency for action by the tax authorities.
Governments have been encouraged by this advice to fill up any holes in their own tax systems while staying up to date on fresh suggestions.
Additionally, New Zealand has generally been in the forefront of enforcing tax laws, and in some circumstances, it has served as a template for other countries to follow.
According to Trombitas, Auckland was in the forefront of creating a methodology for taxing distant services. The EU primarily copied this regulation and labeled electronically delivered services (ESS).
He continues, "We then worked out how to tax low-value goods and now more countries are coming on board with similar rules."
Regarding the planned regulations for enterprises in the gig and sharing economies, Trombitas says "This is the completion of the trilogy."
According to him, other nations will now be watching New Zealand to see how these restrictions are carried out and whether there are any flaws.
The measures to close the tax net on the gig economy are not the first, even if these restrictions may be the most extensive. Regulations have been imposed in Canada and India, with various degrees of effectiveness.
Some countries have made an effort to define their own rules for the VAT/GST of the gig economy. These include Canada, India, Australia, and the European Commission through its VAT in the Digital Age laws.
The countries that have progressed the most in regulating the gig economy are probably Canada and India. The latter has levied GST on ride-sharing and food delivery services offered through apps.
The Canada Revenue Agency, meantime, has adopted a more targeted strategy, focusing on short-term lodging while permitting zero-rated charges on some facilitation expenditures.
Australia has developed a somewhat different approach that is focused mostly on gig economy enterprises providing information with tax authorities rather than taxing them directly.
Regarding Australia's system of capturing GST on ride-sharing or taxis, Scott observes that "they do have a threshold on GST registration, but it doesn’t apply to ride-sharing."
The weight of indirect tax requirements would move from lodging and transportation providers to online marketplaces under these proposed legislation.
As a result, businesses like Uber and Airbnb would be responsible for collecting GST from service providers using their online marketplaces.
Platform suppliers would be seen as having delivered items to online marketplaces, resulting in a zero-rated GST. This will enable suppliers that have registered for GST to deduct the 15% input tax from their expenses.
In the meanwhile, suppliers that are not GST registered may be eligible for an 8.5% flat rate credit on the commodities they supply to online marketplaces.
For large businesses that currently pay GST, there are several exceptions to the requirements. These businesses would not be required to pay the charge under the proposed law if they offer more than 2,000 nights' worth of services each year on online marketplaces.
According to Trombitas, it is unclear if the GST would be applied to both the underlying supply of the commodities and the delivery fees, as in the case of food and beverage delivery services.
The rising regulatory burden is another element that will undoubtedly have a significant impact on online platforms. While underlying providers who are not registered for GST will be allowed to claim an 8.5% credit, marketplaces will be required to account for the 15% GST of their suppliers.
Platforms are expected to experience administrative difficulties as they attempt to abide by the various credit regulations while enabling GST-registered businesses to refund their whole input fee.
"It's creating a whole lot of additional complexity for the platform and they need to do that calculation and work that out correctly," adds Scott.
Deeper worries have been raised about the total compliance burden placed on platforms as a result of the global implementation of DAC7 laws, live reporting, and e-invoicing obligations.
According to Trombitas, there is concern that this issue's mismatched international rules might put even more compliance strain on internet platforms if nations create their own distinctive laws.
In order to make sure that these new laws are successful, information exchange between businesses and tax authorities will be crucial.
These drastic revisions have been grouped together by Inland Revenue with a set of OECD standards on information reporting obligations. According to this approach, online platforms with New Zealand residents will have to provide the tax office with information each year about the income produced by their underlying providers.
"Platforms will need to share and report information on their underlying suppliers to revenue authorities who will then share it with other authorities around the world including Inland Revenue," says Scott.
The information sharing would happen in 2025, even though this obligation would start to apply in April 2024. Stakeholders have until November 2022 to provide comments on the draft regulations and how they could be affected.
While this progressive move to transfer the burden of indirect tax reporting duties in the gig economy from suppliers to platforms to other nations will be widely watched,
By the time of publishing, Uber, Airbnb, Zoomy, Delivereasy, Regulr, Lyft, and Ola have not responded to inquiries.
By fLEXI tEAM