New Zealand: Overview of e-commerce

FROM THE ECONOMIST INTELLIGENCE UNIT

Given New Zealand’s geographical isolation, the benefits of Internet access to international sources of information, educational material and electronic markets are particularly significant. And considering the small size of the market, New Zealanders are making the most of the Internet. Consumers enjoy a variety of options for purchasing goods and services online, and few goods are off limits to online selling and marketing. Internet banking is particularly popular, and the main banks in New Zealand provide online banking services for clients interested in accessing their accounts online. Though undergoing legal scrutiny, pharmacies may sell certain types of prescription and non-prescription drugs to all clients online.

Internet penetration is growing rapidly, and much more growth is expected. According to the International Telecommunication Union (ITU), New Zealand had 48.2 computers in use per 100 persons and 68.4 Internet users per 100 persons in 2005. Most households rely on dial-up modems, the cheap price of which is reflected in the country’s low broadband penetration rate. According to an OECD survey, New Zealand’s broadband penetration rate was 14% at end-2006 (compared with an OECD average of 16.9%), ranking it 21st out of the 30 member countries. However, the 14% penetration rate in 2006 is a sharp increase from the 8.1% penetration rate at end-2005, primarily because other Internet service providers (ISPs) gained access to Telecom New Zealand’s broadband.

In an April 2007 e-readiness ranking, the Economist Intelligence Unit ranked New Zealand 14 out of 69 countries, the same as its ranking in 2006. It also scored 8.19 on our 10-point scale of e-readiness—also the same as its previous scoring in this category.

According to the Ministry of Economic Development’s latest Economic Development Indicators 2005, New Zealand ranked a disappointing 14th out of 19 OECD members in terms of information and communications technology (ICT) investment as a proportion of non-residential gross fixed capital formation in 2002, much lower than neighbouring Australia, which was ranked sixth. A 2002 survey commissioned by the Ministry of Economic Development (MED) indicated that three of every four large firms (firms with more than 50 full-time staff members) had their own website, and 95% had a domain name. More than 50% of all firms had their own website, and nearly all used e-mail. There has been a substantial increase in all aspects of business use of the Internet. Online banking had grown by almost 50% since the previous survey, conducted in 2000. Nevertheless, relatively few firms process transactions on their website; 37% could take orders on their sites, according to the 2002 survey, and only 11% could receive payments online.

There were around 1,473 Internet hosts per 10,000 persons in New Zealand in 2005, compared with 1,978 in Australia and 6,645 in the United States, according to the ITU.

In 2001 a study by Australia’s National Office for the Information Economy concluded that New Zealand trailed world e-business leaders because of lack of competition in the telecoms market. The Telecommunications Act 2001 aimed to reform the telecoms industry and improve competition in a market dominated by Telecom New Zealand. Further regulatory changes were proposed following a scheduled review of the act, leading to the passage in late 2006 of the Telecommunications Amendment Act (No. 2) 2006. That act provides for operational separation of Telecom New Zealand into retail, wholesale and network access units, as well as for unbundling of the local telephone loop in order to allow greater competition among Internet service providers.

The government launched an e-Commerce Strategy in late 2000 to encourage economic growth and innovation in New Zealand through promotion of e-commerce and technology-based business. The strategy includes the following recommendations:

• the availability of e-commerce training through New Zealand Trade and Enterprise’s BIZ programme; and
• the establishment of the New Zealand Venture Investment Fund for investing in businesses based on technology or high-value-added goods and services.

In early 2002 the government announced its aim of rolling out broadband Internet access to most New Zealand schools and provincial communities through the regional broadband extension initiative (project Provincial Broadband Extension—PROBE). The PROBE project was completed in mid-2005 and, according to the government, enables over 90% of New Zealand households to access Telecom New Zealand’s digital subscriber line (DSL) Internet service.

Foreign investment

New Zealand welcomes foreign investment in Internet services. Regulations specifically involving investment by foreigners in the domestic Internet market have not been promulgated, and it is not likely Internet investment will differ substantially from the present foreign-investment regime.

Intellectual property

The government is working to ensure that intellectual-property and privacy rights are respected, both within New Zealand and internationally. New Zealand copyright law, though technology-neutral, does take account of digital and multimedia material and applies to Internet content and use. New Zealand supports international intellectual-property treaties, including those of the World Intellectual Property Organisation.

Consumer protection

The Advertising Standards Authority (ASA) and the Direct Marketing Authority (DMA) established the e-Marketing Standards Authority (eMSA) in 2001 to protect the interests of consumers doing business over the Internet. The body is backed by the Ministry of Consumer Affairs, which released a 2001 survey showing that although New Zealand sites with e-commerce functions had improved their disclosure over the two previous years, many were still not clearly disclosing what they would do with customer information. When the report was published in March 2001, 45% displayed no exchange or refund policy and 50% did not show privacy policies, although the situation has improved markedly since then. The DMA was re-launched as the New Zealand Marketing Association in February 2005, and the new body continues to manage the eMSA trustmark jointly with the ASA.

The government issued the New Zealand Model Code for Consumer Protection in Electronic Commerce in 2001 to help businesses develop self-regulatory mechanisms.

The Unsolicited Electronic Messages Bill, which is similar to legislation in Australia and the United States, had its first reading in parliament in December 2005 and gained royal assent in March 2007. The Unsolicited Electronic Messages Act 2007, which comes into force in September 2007, aims to prohibit the sending of unsolicited commercial electronic messages with a New Zealand link; it will apply to e-mail, text messages and instant messaging services. Maximum penalties for violation of the law are NZ$500,000 for companies and NZ$200,000 for individuals.

Contract law and dispute resolution

The Electronic Transactions Act (ETA) was introduced into parliament in November 2000; along with the Electronic Transactions Regulations, it took effect in November 2003. The purpose of the legislation is to remove impediments to the use of electronic communications and record-keeping in some areas. The law removes uncertainty surrounding the legal status of the use of electronic communication, enabling statutory requirements for writing, signatures, and retention and production of information to be met using electronic methods, and setting default rules for the time and place of dispatch and receipt of electronic communications. The ETA is based on the recommendations of the Law Commission and on the model law for electronic commerce promulgated by the United Nations Commission of International Trade Law (Uncitral) in 1996; it is modelled after Australian legislation introduced in 1999. New Zealand’s government supports moves to achieve this through international bodies such as the UN and the OECD.

Basis of taxation

Electronic commerce has made it more practical for end consumers (those ultimately bearing the burden of any consumption tax) to source goods and services from outside their jurisdiction. This poses difficulties for collecting consumption taxes. Unless Customs can identify those imports, it might be impractical to levy consumption taxes. New Zealand’s goods and services tax (GST; charged at a rate of 12.5%) aims to impose a uniform tax on final consumption in New Zealand. GST is based on the “destination” principle (tax is charged according to the destination of goods and services). Thus, GST is imposed on what New Zealand consumes, rather than what it produces (exports are taxed at 0%). This approach is consistent with international consensus. The issue for tax policymakers worldwide, therefore, is whether it is more practical to impose consumption tax on the consumer or the supplier. In New Zealand, the onus is on the supplier to collect GST. The exception occurs when that supplier is outside New Zealand; customs may then impose GST on the consumer instead.

The OECD issued a draft study in 1999 that considers recommendations for taxing profits that are derived from e-commerce, and it published the conclusions in 2001. Through amendments to the Commentary in the OECD Model Tax Convention, the organisation asserts that neither Internet service providers nor websites constitute permanent establishments of the taxpayers. “Permanent establishment” is the basic criterion that determines a country’s right to tax.

Classification of e-commerce transactions

When purchasing goods from overseas, goods and service tax (GST) is levied on the value of the goods (the total of the declared purchase price including transport or freight and insurance, plus any duty payable) when the goods arrive in New Zealand. Customs collects this before the goods are released to the purchaser. There is a minimum amount on the value of the good, however, below which Customs does not levy GST (NZ$400 at present). Whether the consumer ordered goods through a mail-order catalogue or purchased them on the Internet is irrelevant for tax purposes. If the supplier is resident in New Zealand, the tax is added to the cost of the good.

For GST purposes, services are defined as “anything that is not a good or money”. Services provided by a New Zealand-resident business to a person in New Zealand are charged GST. When a non-resident supplies services to a person in New Zealand, these services are generally not subject to GST. When non-resident suppliers perform the services in New Zealand, however, they are considered residents for GST purposes if they have a fixed or permanent place of business in New Zealand. When the annual turnover of supplies made in New Zealand is greater than NZ$40,000, the non-resident must register for GST, and GST is then payable on the services supplied. If the purchaser receives the services in the course of a taxable activity, no GST is payable unless the two parties agree otherwise.

Compliance and enforcement issues

The Department of Internal Affairs is responsible for enforcing legislation on electronic content, handling complaints referred by Internet service providers, carrying out investigations and providing consumer and business education. It will also interact with enforcement agencies overseas on electronic “spam” coming into or going out of the country when the Unsolicited Electronic Messages Act becomes operational.

SOURCE: COUNTRY COMMERCE