The gig economy would be subject to GST in New Zealand.
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