GST at 40: the same tax, but a very different world

By Manav Sharma & Allan Bullot

New Zealand GST may have reached its 40th birthday, but it has not passed those four decades without changing and evolving into the tax we know (and love) today.  The underlying principle remains remarkably familiar. At its inception, our version of GST was designed as a broad-based tax on consumption in New Zealand, collected through businesses and ultimately borne by the final consumer.   However, since its introduction GST has had to adapt to changing business practices, technology and global trade.

Some of these changes have been highly visible. Others have more subtly reshaped how businesses determine their GST positions and the information they need to retain to support them.

From 10% to 15% (1989 and 2010)

GST came into force on 1 October 1986 at a rate of 10%. It was introduced as part of a much wider reform of New Zealand’s tax system and replaced a wholesale sales tax. The rate then increased to 12.5% in 1989 and then to the current rate of 15% on 1 October 2010.

Although changing the percentage sounds straightforward, each increase required businesses to update accounting systems, pricing, contracts and documentation. The 2010 increase also created practical questions around supplies spanning the changeover date, deposits, lay-by sales, credit and debit notes, and long-term contracts.

What has not changed is New Zealand’s broad commitment to a single standard rate and relatively few exemptions. This distinguishes our GST from many overseas VAT and GST regimes, that apply multiple or reduced rates to particular goods and services. By maintaining a broad base, New Zealand has generally avoided many of the classification and boundary issues that arise when similar supplies are taxed differently.

Bringing financial services further into the GST system (2005)

Financial services have traditionally been exempt from GST. This means that GST is not charged on the supply, and the supplier generally cannot recover GST incurred on costs relating to that supply. For banks, life insurers, fund managers and other financial service providers, this made GST a real business cost, rather than a tax collected on behalf of the government and ultimately borne by the consumer.

A significant change took effect on 1 January 2005, when financial service providers were permitted to zero-rate certain financial services supplied to qualifying GST-registered customers. Unlike exempt financial services, zero-rated financial services carry a 0% GST rate while still allowing the provider to recover GST incurred on costs associated with making those supplies. This reduced the extent to which GST represented an irrecoverable business cost for financial service providers, which was creating “tax cascades” for end consumers.

The reform brought part of the financial services sector more fully within the GST system, but it also introduced a new layer of complexity. To determine whether financial services can be zero-rated under the rules, providers must identify eligible customers and qualifying supplies, retain appropriate supporting evidence, and develop suitable GST recovery methodologies. The distinction between an exempt financial service and a zero-rated business-to-business financial service therefore remains commercially significant today, and an area of confusion and complexity.

The reverse charge arrives (2005)

The same package of reforms introducing the zero-rating of financial services also introduced a reverse charge for certain imported services. 

Under the GST reverse charge rules, a GST-registered New Zealand recipient may be required to account for GST on services acquired from an offshore supplier where those services would have been taxable if supplied in New Zealand and the recipient makes more than a minimal level of exempt or other non-taxable supplies. When the rules were introduced, relevant examples included management, legal and accounting services, software installation services, and products downloaded via the internet.

The reverse charge rules were introduced to create greater neutrality between services acquired from offshore suppliers and those acquired from New Zealand suppliers that charge GST. They are especially important for financial service providers and other partly exempt businesses, as those businesses may not be entitled to recover the resulting GST in full and were otherwise incentivised to get services from offshore.

Although the reverse charge predates today’s digital economy and the introduction of the remote services rules, it represented an early recognition that New Zealand’s consumption tax could no longer focus solely on transactions involving local suppliers.

Compulsory zero-rating changes the property landscape (2011)

Land transactions can involve some of the largest amounts of GST and pose some of the most significant risks to the tax base. In certain circumstances, Inland Revenue was required to refund GST to a purchaser even where the vendor had failed to return the corresponding output tax. This was creating a significant fiscal cost to the Government due to “phoenix fraud” in large property developments.

To address this risk, reforms to the GST Act took effect on 1 April 2011, introducing compulsory zero-rating for qualifying supplies of land between GST-registered persons. Broadly, a transaction must be zero-rated where the purchaser uses the land to make taxable supplies and does not intend to use it as a principal place of residence for themselves or a blood relative.

The change reduced the funding and fraud risks associated with large GST payments and refunds. It also placed greater importance on confirming the parties’ GST registration status and intentions at the time of settlement.

The practical consequences for businesses can be substantial. An incorrect assumption about a purchaser’s GST registration status or intended use of the land may determine whether a transaction is zero-rated or subject to GST at 15%. Forty years into the regime, sale and purchase agreements involving land remain an area where a small number of words can have a significant GST outcome.

GST crosses the digital border

The original GST system was designed for a locally based economy. The growth of streaming services, software subscriptions, digital platforms and direct-to-consumer online sales challenged that traditional framework by enabling offshore suppliers to serve New Zealand customers without a physical presence in the country.

Remote Services (2016)

From 1 October 2016, non-resident suppliers of remote services and intangibles to New Zealand-resident consumers were required to register for and return GST where the $60,000 registration threshold was exceeded. The rules brought digital products, such as e-books, music, software subscriptions and other non-digital remote services within the GST framework.

The rules are principally directed at business-to-consumer supplies. Supplies to New Zealand GST-registered businesses are generally outside their scope, reflecting the expectation that GST incurred by businesses making taxable supplies would ordinarily be recoverable. This distinction requires offshore suppliers to determine whether a New Zealand customer is acquiring the service in a private capacity or as part of a GST-registered business.

Low-value goods (2019)

The offshore supplier rules expanded again from 1 December 2019 to cover low-value imported goods sold to New Zealand consumers. Under these rules, overseas merchants, operators of online marketplaces and redeliverers may be required to register for and return GST where their relevant supplies to New Zealand consumers meet the $60,000 registration threshold. GST is generally collected at the point of sale on physical goods with an individual customs value of $1,000 or less, rather than when the goods cross the border.

As with the remote services rules, the regime is principally directed at business-to-consumer transactions. Supplies to New Zealand GST-registered businesses acquiring the goods for business use are generally excluded. Goods valued above $1,000 generally remain subject to GST and any applicable duties and levies collected at the border.

The change reduced the potential GST advantage previously enjoyed by offshore sellers whose goods could reach New Zealand consumers without GST being collected. It also marked a further shift in responsibility for administering New Zealand GST, requiring offshore businesses and digital platforms to identify New Zealand consumers, determine the value of the goods supplied, and collect and return GST despite having no physical presence in New Zealand.

Listed services rules (2024)

A further expansion took effect on 1 April 2024, applying to listed services supplied through online marketplaces. These services include ride-sharing and ride-hailing, food and beverage delivery, and short-stay or visitor accommodation. Under the rules, a qualifying online marketplace is treated as the supplier and must collect and return GST at 15% when the service is performed, provided or received in New Zealand. This applies regardless of whether the underlying seller is registered for GST.

For non-GST-registered sellers, the rules also include a flat-rate credit scheme. The marketplace collects and returns GST at the standard rate but must generally pass an 8.5% flat-rate credit to the seller, recognising the average GST costs that the seller might otherwise have recovered if GST-registered. The reform therefore extends GST collection across the platform economy while placing much of the compliance responsibility on the marketplace rather than individual drivers, deliverers or accommodation providers.

Collectively, these changes reflect a significant shift in how GST operates and is administered as the digital economy continues to grow. A tax once collected primarily from domestic businesses at physical points in the supply chain is now also collected by offshore suppliers and digital platforms, based on information about customers, sellers and where consumption occurs. Non-resident businesses with no physical presence in New Zealand may therefore be required to register for GST and meet ongoing collection, filing and payment obligations.

As cross-border commerce continues to evolve, compliance by offshore suppliers is likely to remain an important focus for Inland Revenue. The challenge is no longer simply ensuring that the GST rules capture new forms of supply but also ensuring that non-resident suppliers understand and comply with their New Zealand GST obligations.

Goodbye tax invoices, hello taxable supply information (2023)

For many businesses, the tax invoice was historically the most recognisable evidence of GST compliance. That changed on 1 April 2023, when the prescribed tax invoice framework was replaced with more flexible taxable supply information requirements.

The reform did not change what constitutes a taxable supply or how GST is calculated. Instead, it changed the information that suppliers and customers must provide and retain. Required information can now be held across invoices, accounting systems, bank statements, purchase orders, contracts and other records, rather than necessarily appearing in a single prescribed document. Businesses can also continue to use the words “tax invoice” on their documents.

The reform recognises that modern transaction information is increasingly recorded and exchanged electronically. It also provides a more flexible foundation for e-Invoicing, through which invoice information can pass directly between buyers’ and suppliers’ financial systems using the Peppol network. Although e-Invoicing is not itself a requirement under the GST Act and Inland Revenue does not receive the invoice information exchanged through the network, its use is expected to become increasingly significant as adoption expands.

That expansion is already under way in the public sector. Since 1 January 2026, government agencies meeting the relevant invoice-volume thresholds have been required to be capable of sending and receiving e-Invoices. From 1 January 2027, those agencies must also require large suppliers, broadly those with annual revenue exceeding $33 million in each of the two preceding accounting periods, to submit e-Invoices. These are government procurement requirements rather than amendments to the GST Act, but they are likely to influence businesses’ invoicing systems, processes and controls more broadly.

Greater flexibility and automation do not, however, make supporting evidence optional. Businesses must still retain records that, taken together, contain the required taxable supply information and support the GST treatment adopted. As e-Invoicing becomes more common, businesses will also need to ensure that their finance systems preserve the required GST information and apply the correct tax treatment consistently, rather than assuming that an automated invoice is necessarily GST-compliant.

Four decades of adaptation

The GST Act retains the core architecture established in the 1980s, but has expanded to address financial services, land transactions, imported and remote services, low-value goods, digital platforms, apportionment and electronic record-keeping.

The story of GST’s first 40 years is therefore not simply that the rate increased from 10% to 12.5% to 15%, but that the regime has repeatedly adapted while retaining its broad-base, single-rate design. That evolution is continuing, with Inland Revenue considering issues such as cross-border supplies, error correction, GST grouping, and accommodation.

At 40, GST remains recognisably the tax introduced in 1986. However, the economy around it, and the legislation and administration required to keep pace, look very different.