Online GST by Christmas?

New Zealanders could be paying GST on iTunes and Netflix before Christmas.

Cabinet made no decisions today about online GST but Prime Minister John Key said a discussion document would be released this week on targeting offshore purchases.

The document would cover two issues - paying GST for online services and paying GST on imported goods.

Government was likely to act on the online issue first, and GST could be introduced for online purchases such as pay TV and digital downloads by the end of the year.

The second issue was likely to take longer and officials would not provide any recommendations to Government until late October.

Mr Key said it was possible to move more quickly on taxing online services because several other countries had already implemented it.

He said 12 jurisdictions had a tax system for online services and it was a "well-trodden path that actually works".

Online shopping tax:

• GST is not currently charged on imported digital products such as downloaded music and film.

• Physical goods bought online and worth less than $400 also usually escape GST.

• New Zealand has the second-highest threshold for tax payments in the world.

• Australia has the highest threshold at A$1000 ($1035).

 • Most countries' tax threshold is the equivalent of around $25.

Asked why New Zealanders should pay tax on iTunes songs - which can cost as little as $1.50 - he said the principle should be the same for no matter how cheap the product.

"If you go down the road and buy a lolly for 10c you pay GST on it," he said.

The discussion paper would include a chapter on the paying GST on imported goods, which is currently required for anything worth more than $400.

Mr Key said this issue was more complicated and would take officials longer to work out.

He said the threshold for paying GST on imported goods could fall as long as $20 or zero, similar to what Australia was considering.

However, making the threshold zero would inconvenience many consumers. "There has got to be a better way through this," Mr Key said.

Government wanted to be fair to New Zealand's retailers and maintain GST revenue, while also not badly inconveniencing online shoppers.

Mr Key said Government was losing out on around $180 million in tax on online purchases, and this figure was rising.