OPINION: Few people will welcome paying GST on more purchases, but the way the Government plans to go about charging GST on digital imports is the best they could have hoped for.

From October, foreign companies will have to collect GST on sales of digital services to New Zealanders, such as online television subscriptions and music and game downloads.

The biggest problem with the so-called "Netflix tax" is consumers could be fined up to $25,000 if they use a Virtual Private Network (VPN) to pretend their computer is overseas when buying an online service.

Then again they may not.

The thing is, it will all depend on the consumer's motivation.

If they are using a VPN to trick a foreign company into not charging them New Zealand GST, that would be illegal.

But if they were using a VPN to access content that was blocked in New Zealand, for example for copyright reasons, then it seems that would be okay.

Tens of thousands of Kiwis are believed to use VPNs to access the US version of Netflix.

So how would Inland Revenue know whether someone was doing that to avoid paying GST on the New Zealand version of Netflix, or because they wanted to access Netflix content that wasn't available here?

The bizarre upshot is the legality of subscribing to the US version of Netflix might depend on what programmes people then watched.

Ironically, it might be legal if someone used the service to watch programmes in breach of local copyright (programmes they could not get from the New Zealand version of Netflix), but illegal if they only watched programmes that were legally available from Netflix in New Zealand – because then, their only motivation for using the US service would surely be to avoid GST?

Good luck coming up with a better solution though.

It may be that using a VPN to access overseas television services will be outlawed anyway down the track as a consequence of the Trans Pacific Partnership agreement (TPPA).

It seems that no-one – not even the ministers who negotiated the TPPA – really know.

Despite all that, Revenue Minister Todd McClay has done a good job with the Netflix tax.

The key decision he has made is that foreign companies should only levy GST if they sell more than $60,000 of services to New Zealanders each year; otherwise their sales will be GST-free.

The threshold can be justified because it is also the one above which New Zealand firms must levy GST on their domestic sales. But it is comparatively very high.

Australia plans set the threshold on its Netflix tax at A$75,000 (NZ$84,127). But as Australia's population far exceeds New Zealand's, that will catch many more suppliers.

The Government is likely to consult next year on whether to extend the Netflix tax to physical items, making it more of an "Amazon tax". Currently, most purchases of items worth less than $400 from overseas websites don't attract GST.

The Amazon tax will probably work the same way as the Netflix tax, with foreign firms required to levy GST if they ship more than $60,000 of goods direct to New Zealanders.

The threshold would mean only big overseas firms would have to levy GST on their New Zealand sales.

Small foreign businesses that are more likely to sell products that aren't available in New Zealand – and which might not ship here at all if faced with cumbersome red tape – will escape the net.

Local retailers may be grumpy about the compromise. Amazon may be livid.

Amazon faces a real risk of disintermediation if New Zealand's approach catches on with other small countries and Amazon's suppliers find they are better off selling direct to consumers to sidestep GST, rather than through its online marketplace.

But Kiwi consumers can applaud McClay's good sense in putting his priority on keeping the wheels of e-commerce turning.