Chapter 5 - Enforcement, compliance and penalties
- The existing penalties under tax legislation would apply to consumers that falsely represent themselves as a business to avoid GST.
- Inland Revenue would be provided with the discretion in certain circumstances to require a consumer to register and pay the GST that should have been returned.
- Further measures to bolster compliance will be explored, such as a possible joint-registration system with other countries or data matching programmes between tax jurisdictions or government agencies.
5.1 New Zealand’s tax system is based on the principle of voluntary compliance. That is, because our tax system is largely fair and coherent, the vast majority of people do the right thing and comply with their tax obligations. Our tax rules, by and large, are designed to make it easy for people to comply and difficult for people not to comply. It is expected that most offshore suppliers of low-value goods would comply with the rules outlined in this document for the same reason.
5.2 New Zealand’s recent experience with GST on cross-border services has shown that a strategy of making it as easy as possible for offshore suppliers to comply with the rules is likely to help maximise compliance with an offshore supplier registration system. It has also been the experience in other jurisdictions that have implemented similar rules for cross-border services that offshore suppliers have demonstrated a willingness to comply. This is to a large extent because the tax is passed on to the consumer and any cost is administrative only.
5.3 The Government is therefore keen to ensure that the rules are workable and are as easy and practical for offshore suppliers to comply with as reasonably possible.
5.4 New Zealand has mechanisms for mutual co-operation, information exchange and assistance with many jurisdictions under both bilateral agreements and the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. These agreements cover an extensive network of jurisdictions, including our major trading partners. The agreements mean New Zealand can request that our treaty partners (that is, other foreign tax authorities), collect and provide information, assist in the service of documents, and collect unpaid GST on New Zealand’s behalf.
5.5 In addition to the current compliance approach, the Government will continue to explore different approaches to further bolster compliance as well as maintain and strengthen cross-border neutrality.
Measures to bolster compliance
Opportunity to explore a joint-registration system with other countries in the future
5.6 It will be important in the future to explore joint compliance initiatives with other jurisdictions that have similar rules for collecting GST on low-value goods. For example, this could mean a joint Australia/New Zealand registration system. A similar system operates in the European Union and is known as the “one-stop-shop” registration system. Under the one-stop-shop, suppliers are able to register in a single Member State, which is then responsible for distributing the GST returned amongst the other relevant Member States at the appropriate rate.
5.7 The intention of the one-stop-shop was to lower the compliance costs imposed on offshore suppliers and to enhance compliance with the system as a whole. This is because registering and filing a single return with one Member State is considered to be easier than registering and filing in multiple Member States.
5.8 In the New Zealand context, our most obvious regional partner is Australia. Similar benefits could be achieved through a comparable one-stop-shop in the future. For example, if an offshore supplier supplied services or goods to both Australia and New Zealand, a one-stop-shop registration system would allow the supplier to register and file returns in a single country, instead of both countries.
5.9 It should be noted, however, that such a system would require high levels of cooperation and would take time to develop. An offshore supplier registration system would therefore be embedded in both New Zealand and Australia before consideration would be given to developing a joint registration system.
Data matching programmes
5.10 Other compliance measures that could be explored include data matching programmes. This could be done between jurisdictions or with Customs and Inland Revenue.
5.11 As a first step towards a joint-registration system it could be possible, for example, for Australia and New Zealand to share a list of registered suppliers under our respective rules for low-value imported goods.
5.12 Domestically, Customs’ import entry information could be matched with Inland Revenue’s list of GST-registered businesses to determine whether suppliers who are supplying more than $60,000 of goods a year into New Zealand are registered for GST. Officials consider that this can be efficiently supported by the new customs and excise legislation.
Penalties for false representations by consumers
5.13 The Government proposes that the existing penalties and use-of-money interest rules that apply to domestic suppliers be extended to apply to offshore suppliers. Further, the existing knowledge offences under tax legislation would apply when a person deliberately supplies incorrect information for the purpose of avoiding GST – for example, by misrepresenting themselves as a GST-registered business. The maximum fine a court could impose is $25,000 for a first time offender or $50,000 for a repeat offender.
5.14 In addition to existing penalties, it is proposed that in egregious cases, Inland Revenue would also have the discretion to require a person to register and pay the GST that should have been returned. This would apply only in exceptional cases, such as when a person repeatedly provided false or misleading information about themselves in order to avoid GST.