Tax plan for digital companies

The Government is exploring a move to tax digital giants like Facebook and Google more for their income made within New Zealand.

Prime Minister Jacinda Ardern announced the move yesterday. Cabinet has agreed to issue a discussion document in May on how to update tax settings to suit the digital world, likely with a ‘‘Digital Sales Tax’’ or DST, similar to what is being explored in overseas.

This tax would be chargeable on any revenues digital companies make from Kiwi users in New Zealand, even if they maintain only a tiny subsidiary company on our shores. It would be in the range of 2 to 3 per cent.

The Government expects it would bring in between $30 million and $80m a year, starting at the earliest by 2020.

The cross-border digital services trade is estimated to be about $2.7b in size.

‘‘Some companies can do significant business in New Zealand without being taxed for the income they earn,’’ Ardern said.

‘‘This is not fair, and this is not sustainable.’’

In theory this would stop companies like Facebook and Google from funnelling revenue made in New Zealand to overseas jurisdictions with lower tax rates.

Other similar proposals overseas have the tax kick in when a company makes more than a certain amount of revenue, meaning smaller local operators are less likely to be stung.

Google’s New Zealand subsidiary paid $393,000 in tax in 2017. Facebook paid $43,000 in 2014.