IRD hunts $250m in tax from e-tailing

By RICHARD BRADDELL and MICHAEL FOREMAN

As much as $250 million in tax from internet and electronic transactions could be slipping through the net, says KPMG tax partner Craig Elliffe.

The pressure to maintain the revenue base is behind Inland Revenue's demanding and getting from the internet registry, Domainz, a list of the 80,000 owners of New Zealand websites.

Mr Elliffe said the tax department was almost certainly looking for e-commerce sites which were not paying GST on goods sold in New Zealand.

His estimate of potential losses is based on the amount of business-to-business and business-to-consumer deals, particularly from those with overseas companies which get missed in the tax net.

However, tax experts say that GST not paid on sales on local websites is likely to be easily detected.

One clue might be whether the website declared a policy on GST that told overseas buyers that they were exempt.

"Are they asking you to sign a declaration that you are not a New Zealand resident? I bet none of them do," Mr Elliffe said.

Forcing New Zealand e-commerce websites to display a GST number might help bring some order into the tax scene.

But Mr Elliffe and other tax experts say the tax department has a big job to identify the tax dodgers among the 80,000 registered websites.

Thomas Pippos, a tax partner with Deloitte, said the list of registered owners could contain trade names or names that were different from the actual owners or those on tax returns.

"It's a huge logistical exercise in trying to cross-reference that to someone else," Mr Pippos said.

There were also some fine legal issues about whether an overseas company which had a server in New Zealand could be regarded as New Zealand resident for tax purposes.

However, Mr Pippos and Mr Elliffe said Inland Revenue was likely to be looking for the large traders.

While Inland Revenue might not be able to catch everybody, it was appropriate for the department to raise awareness that it had a big interest in the area, Mr Elliffe said.

The issue of sales tax collection on internet transactions is now of concern around the world because of the scale of activity.

The European Union is expected to vote in favour of rules that would force non-European internet vendors to collect value-added tax, on behalf of European Governments, on goods sold into the region. Meanwhile, there has been muted reaction from those in e-commerce to the IRD action.

Several internet service providers shrugged off the privacy implications of tax authorities obtaining information that had been registered on behalf of their clients. Other internet-related companies believed that Inland Revenue had taken up a blunt weapon against tax evasion.

The founder of Manukau-based lingerie e-tailer jenniferann.com, Jennifer Hannah, strongly backed the tax department's action.

"I think it's great. I don't think operating a business on the internet should be any different from any other businesses."

"I think it will help to weed out all the rotten apples on the internet," Ms Hannah said.

While her company trades under a dot.com web address, it also maintains a dot.co.nz domain name.

The fact that these details would be included on the CD-Rom now in the hands of tax authorities did not worry her.

"There should be one set of rules for businesses on or off line.

"We at jenniferann.com have nothing to hide but I know there are some companies out there who are doing things under the table."

Clear spokesman Ross Inglis said the tax department's move was a timely pointer to an important issue.

"Taxation of the internet would put a brake on international e-commerce but that's an issue that requires some clarification.

"It is for Governments to resolve and we would be working with them on this," Mr Inglis said.

Greg Cross, chief executive of Auckland e-commerce company Advantage Group, which developed the Domainz site, believed that the database would a blunt weapon.

"It's just a list of names and it does not contain data on e-commerce transactions," he said.

"If that's the purpose of it then I am not sure it achieves that."

Links


Domainz

Jenniferann