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Contradictions in Tax – TrueNZ

The Prime Minister and various other Ministers (David Seymour & Simon Watts in particular) have been singing the praises of the restoration of interest deductibility for landlords as returning to fundamental taxation principles.

There is a deafening silence on the complete upending of another fundamental taxation principle that also takes effect on 1st April.

From that date some businesses – hotels, motels, B&Bs etc that fall below the threshold requiring them to charge their guests GST on their stays & bookings – are suddenly going to have GST lumped onto much of their business. These businesses themselves will still not be required to pay the GST, and nor will they be required to charge or pay it on bookings made directly with them.

They will, however, automatically have GST added to their bookings made through any of the major online booking services – Booking.com; Airbnb etc. – which currently account for some 60% of all accommodation bookings in New Zealand.

So, turn up to stay somewhere without prebooking, or make a phone booking and there is no GST. Book through an online booking site and GST is added.

Apart from upending a fundamental taxation principle, how is that fair or even-handed tax treatment?

There are already unintended consequences. One of the major international online booking services – Expedia – has already announced that they are withdrawing ALL accommodation listings in New Zealand for properties that do not qualify for an exemption from the new rules. Only larger motels and hotels can do that. All smaller accommodation providers – B&Bs, farmstays etc – are being removed from Expedia, which is a major source of inbound bookings, particularly for the important (and flourishing) North American FIT- market. This is exactly the type of accommodation preferred by much of this market.

This is a major setback for tourism in New Zealand. Should any of the other major online booking services follow suite – and others are as yet undecided – that will spell disaster for a very important sector of New Zealand’s tourism industry.

The compliance costs for this tortuous new legislation are huge and will further add to what accommodation providers will need to charge their guests.

International tourism is a highly competitive business. New Zealand is already getting a reputation as an expensive destination. These cost increases will only add to that.

National & ACT both campaigned on repealing the previous government’s legislation enacting these changes. The coalition Government has since U turned on that, David Seymour, and Nicala Willis both apologetically saying that it didn’t make it through the coalition negotiations.

This new GST regime for accommodation providers is so unbelievably complex that even IRD themselves don’t understand how it will all work.

The legislation upends longstanding tax fundamentals, is exceedingly complex, to the point of being unworkable, has significant unintended consequences and carries massive compliance costs. It needs to be urgently repealed (as was promised) or, at the very least deferred and rewritten.

 

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