The Government today proposed that financial services supplied to other businesses be bought within the Goods and Services Tax regime.
The changes do not have any major revenue implications.
Revenue Minister Michael Cullen said banks, credit unions, life insurers and other financial institutions would be treated more like other enterprises from aGST perspective. This would allow them to recover GST on purchases related to the supply of their services to businesses.
Outlining the discussion paper, Dr Cullen said the simplicity of New Zealand's GST regime derived from its comprehensive coverage. However, it was decided when GST was introduced that areas such as financial transactions could not be accommodated within normal GST rules, so they were exempted.
Finance companies could be penalised because the current rules sometimes prevent them claiming GST refunds,
"Time and international experience have shown that it is possible to zero-rate GST on financial services supplied to registered businesses, which is what the government is proposing."
In practice, the change means that financial services would still not attract GST, but suppliers of these services to businesses would be able to recover GST on the purchases related to them.
"We expect that this would lower the cost to businesses of using financial services," Dr Cullen said.
The proposal is aimed at complementing an earlier proposal to charge GST on imported services.
Under current law, imported goods, but not services, are subject to GST. The exception for imported services serves as an incentive for certain businesses to import services rather than acquire them locally.
The Government plans to introduce legislation relating to both proposals, and at the same time tighten the definition of financial services.
