Netflix will launch its streaming television and film service in New Zealand next week. However, even before its launch in the region, the firm enjoys an advantage compared to its local rivals. Its offshore location provides the U.S. firm the privilege of not charging any GST (a value-added tax much like sales tax in the U.S.) in NZ, says a report from stuff.co.nz.
Netflix enjoys a cost advantage over rivals
All of the three major competitors in the region, Netflix, Sky Television and Spark, seek to provide best programs on their streaming televisions services, and are battling it out for market share. However, the fact that Netflix viewers will not have to pay GST puts the U.S. Company at a 15% cost advantage over Lightbox and Neon.
In a statement on Tuesday, Netflix said, “There are no local or federal rules requiring companies not based in New Zealand to collect GST on digital purchases.”
Local rivals, as expected, are not happy. Lightbox, owned by Spark, is a company-based in New Zealand, and therefore, charges GST. Richard Llewellyn, a spokesman of Spark, said that the digital services lack a level playing field, and this situation serves as an example.
The spokesman also said Lightbox is a company based and set up in New Zealand, and pays its fair share of New Zealand tax, and therefore, companies selling their services in the region should also be made to follow similar rules.
New Zealand working to sort things out
Like all other OECD countries, New Zealand has had to comes to terms with how to deal with the local taxes imposed on offshore purchases including Digital services and downloads. To come up with an acceptable solution, Revenue Minister Todd McClay, in a speech last week, has asked officials to develop a new system.
Accepting the importance of GST, Prime Minister John Key noted that while a GST imposed on a $NZ1.29 song downloaded from iTunes will only cost a few cents, keeping in mind the massive number of transactions, there is good reason to apply GST.
In June of last year, South Africa became the first nation to impose the GST on internationally-based services. Now, all the overseas firms supplying electronic services to the South African customers are required to register for the GST.