Hearing for law-change objectors

By BRIAN FALLOW economics editor

Opponents of Government plans to amend the GST laws will now have a chance to be heard by Parliament's finance and expenditure select committee.

The controversial provisions relate to GST on services consumed in New Zealand by non-residents before 1999, and mainly affect tourist firms and educational establishments with foreign students.

They are controversial because:

* They are retrospective to 1986

* They treat like cases differently

* They embody the idea that firms which pay GST are merely intermediaries between the Inland Revenue and the ultimate taxpayer, the consumer.

The changes will allow the Government to reject claims for up to $200 millon-worth of refunds of GST already in its coffers.

Announcing the policy on Monday, Revenue Minister Michael Cullen said the change would be referred to the select committee for inclusion in the tax bill already before it.

But submissions on that tax bill closed last Friday.

Act MP Rodney Hide is suspicious of the timing of Dr Cullen's announcement.

He said Dr Cullen had brought the legislation forward because otherwise he would have to declare the tax at stake as a quantified fiscal risk in next week's Budget. But he had waited until submissions on the tax bill closed.

A spokeswoman for Dr Cullen said the timing was "mere happenstance." He had been unaware that submissions had closed. It was announced on Monday because that was when the Cabinet had made its decision.

In any case, the select committee's chairman, Mark Peck, said yesterday it would be calling for submissions when it received the amendments from Dr Cullen next week.

"It will be open for submissions for two weeks," Mr Peck said, "and we will go to tax practitioners directly - not all of whom oppose these changes, by the way."

The bill is not due to be reported back to the House until October 4.

One tax practitioner opposed to the changes is Alan Judge, of Ernst & Young, whose clients include several affected tourist operators.

He argues they are riddled with anomalies.

Firms which did not pay the GST, on the assumption that these services were in effect exports, are in the clear; the Government is not going after them retrospectively.

Those which did pay GST, on the grounds that the services were consumed in New Zealand, but who have since received a refund, are also in the clear.

But those who have applied for a refund but not yet received it will be out of luck - unless they can prove they will pass it on to the tourists or clients who used the service.

Otherwise, Dr Cullen contends, it would just represent a windfall gain to the firms.

"The money is not theirs to claim. They simply collected it and passed it on to the Government."

But Mr Judge argues that if someone buys a house, it is immaterial to the buyer whether the vendor is an owner-occupier who does not have to pay GST, or a property developer who will have to pay one-ninth of the price to the Government in GST.

The taxpayer is the property developer, not the buyer of the house.

Mr Hide said, "I understand universities have got tens of millions back, and I know of tourist operators who have had multi-million-dollar cheques."

In a case brought by Wilson and Horton, a 1995 Court of Appeal rulingallowed zero-rating of services consumed in New Zealand when the contract was made with a non-resident who is outside New Zealand.

The previous Government then brought in amending legislation in 1999 to restore the principle that services consumed in New Zealand should be taxed, regardless of who consumes them.

But that change was not made retrospective, prompting a stream of applications for refunds.

National's tax spokeswoman, Annabel Young, said: "It's a double standard that under Cullen's plan those who were lucky enough to get a refund keep it, but those who went to an unfriendly IRD office miss out."