New Zealand plans to, and will likely impose, hefty new taxes on online giants such as Amazon, Google, and Facebook to close glaring gaps in its tax code that deprive it of income.
New Zealand said today it will update its laws so it can tax revenue earned by multinational digital firms. Prime Minister Jacinda Ardern said the cabinet had agreed to issue a discussion document about how to update the country's tax framework to ensure multinational companies pay their fair share.
"Our current tax system is not fair in the way it treats individual taxpayers, and how it treats multinationals," said Ardern.
New Zealand's tax rules allow multinational companies in the digital realm to do business without paying income tax. Ardern wants that changed with the imposition of a digital services tax (DST) of two to three percent, said CNBC.
A DST is generally charged at a flat rate of two to three percent on the gross revenue earned by a multinational company in other countries. New Zealand has no DST but other countries such as the U.K, Spain, Italy, France, Austria, and India have enacted or announced plans for a DST. The EU and Australia also intend to impose their own DST.
The value of cross-border digital services in New Zealand is estimated at NZ$2.7 billion (US$1.86 billion). The government estimates revenue from a DST to range from NZ$30 million (US$20.6 million) and NZ$80 million (US$55 million), said Finance Minister Grant Robertson.
Ardern noted that highly digitalized companies, "such as those offering social media networks, trading platforms, and online advertising, currently earn a significant income from New Zealand consumers without being liable for income tax.
"That is not fair," Ardern said, adding that the government is determined to do "something about it". She also said the current tax system isn't sustainable.
Ardern said she isn't concerned the bigger tech or social media companies will decide to leave New Zealand, as a result of a tax such as DST.
International tax rules have not kept up with modern business, said Revenue Minister Stuart Nash. He said the interim DST measures will be in place by 2020.
Nash affirmed the government stands to earn anywhere from NZ$30 million to NZ$80 million a year in revenue if the tax goes ahead.
The controversial issue of multinational corporations selling goods or services online and booking revenues in low-tax jurisdictions, or charging local subsidiaries high license or service fees, has been annoying the New Zealand government and New Zealanders for years.
