Government addresses GST anomaly

By Phil Boeyen, ShareChat Business News Editor

Friday 22nd March 2002

The financial services sector should be in for some tax relief after the government announced a proposal which will allow financial businesses to claim back GST on costs.

Revenue Minister Michael Cullen says the proposal is aimed at relieving the over-taxation of business-to-business transactions in the financial services sector.

"Financial institutions cannot claim GST refunds on most goods and services they buy because the services they supply are exempt from GST. Instead they must absorb the costs or pass them on to their customers.

"We are proposing to zero-rate GST on services supplied by the sector to registered businesses. The effect would be that GST would still not be payable on the services but that the financial institutions could claim back GST on their business costs. "

Dr Cullen says the proposal developed out of discussions with the industry and will be subject to a further round of consultations.

"Later this year the government will release a discussion document on the wider issue of GST and financial services, seeking public comment. It will include details on how the zero-rating idea might work.

"Any resulting legislative changes will be included in the first taxation bill after the election. In the same bill we will also introduce a measure to remove another GST anomaly, the fact that imported services are not subject to GST."

Dr Cullen says the lack of GST on imported services is an incentive for New Zealand businesses to import services rather than acquire them locally.

"The government's solution is to introduce a 'reverse charge', whereby the New Zealand recipient rather than the overseas supplier assesses the GST and pays it to Inland Revenue."

The two measures are expected to take effect from April 1, 2004.

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