Tax Talk | Taxing the gig and sharing economy

With the rapid rise in the use of digital platforms to connect buyers and sellers, tax administrations around the world are realising that meeting tax obligations under current tax settings is a real challenge for those involved in the gig and sharing economy.

Time to read: 2 mins

Examples of this new type of business are short-stay accommodation services and provision of personal services (such as ride sharing and delivery services). Having seen measures taken in other OECD countries, New Zealand is looking at implementing a new approach to tax the gig and sharing economy.

On 10 March 2022, the Government released a discussion document seeking submission on proposals to make it easier for people earning income through digital platforms to account for tax. Consultation closes on 21 April 2022.

The Government’s key objectives are improving compliance and fairness. It is seeking views on whether to follow the OECD model or adapt it to suit New Zealand context. Some of the key proposals include:

  • Collecting data from digital platforms and exchanging with other tax jurisdictions
  • Involving digital platforms in the collection of tax
  • Modifying the GST rules for the gig and sharing economy

A significant portion of the proposal document is devoted to a discussion on GST. Besides proposing to extend the marketplace rules and make digital platforms responsible for collecting GST, three options are being considered for GST on the sellers’ costs as the Government tries to strike a balance between fairness, administrative and compliance costs, and complexity.

The three options are:

  • Sellers registering for GST and claiming back GST on expenses, in the usual way
  • A flat rate scheme (which is industry specific) where a lower rate of GST is collected on sales in recognition of the GST associated with costs that would be recoverable if the seller were GST registered. In this case, sellers would not need to be GST registered
  • Refunding GST on costs in the annual income tax return

Our view is that the proposal will not result in a win-win situation for everyone. Yes, tax compliance would be easier for sellers who use digital platforms, and the playing field would be fairer for traditional sellers. It also benefits Inland Revenue administratively without the need to spend on huge resources to follow up on the tax liabilities of numerous individual sellers. However, all the work would be shifted to the digital platform operators who would incur additional administration and compliance costs to collect more information about their sellers, account for tax on their behalf and report information to Inland Revenue.

The report can be found here.

 

If you would like to find out more about how this proposal could affect you, or consider making a submission, please contact your Baker Tilly Staples Rodway advisor.

DISCLAIMER: No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.

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