The Government has binned a tax worth an estimated $100 million each year after threats of retaliation from US President Donald Trump and claims about “overseas extortion” through these types of levies.

Revenue Minister Simon Watts announced today the Digital Services Tax Bill would be pulled from the coalition’s pipeline of laws.

Inherited from the previous Labour Government, the law as originally conceived would have applied a 3% tax on digital services revenue earned from New Zealand customers by the likes of global tech giants (many of which are based in the US).

The coalition was hesitant but kept the law on its books during 2024.

The concept of digital taxes has received a cool reception from US administrations past and present.

The issue led to Trump firing off a missive in February this year vowing action against any attempts at what he described as “overseas extortion”.

“Beginning in 2019, several trading partners enacted digital services taxes that could cost American companies billions of dollars and that foreign government officials openly admit are designed to plunder American companies,” Trump wrote.

“It is the policy of my administration that where a foreign government, through its tax or regulatory structure, imposes a fine, penalty, tax, or other burden that is discriminatory, disproportionate, or designed to transfer significant funds or intellectual property from American companies to the foreign government or the foreign government’s favoured domestic entities, my administration will act, imposing tariffs and taking such other responsive actions necessary to mitigate the harm to the United States and to repair any resulting imbalance.”

Revenue Minister Simon Watts has announced the Government is ditching the Digital Services Tax Bill. Photo / Alex Burton

Watts said this afternoon the Government had been “monitoring international developments” and decided to halt the bill.

“A global solution has always been our preferred option, and we have been encouraged by the recent commitment of countries to the OECD work in this area,” Watts said.

“Ultimately, we needed to ask ourselves if adopting the bill was in New Zealand’s best interests given all the relevant factors. And we have decided that it would not be at this time,” he later told the Herald.

Treasury had already included the revenue from the tax in its latest forecasts and estimated it would snare New Zealand $479m between 2027 and 2029.

Watts said tonight that “the forecast revenues from the introduction of a Digital Services Tax no longer meet the criteria for inclusion in the Crown accounts”.

Documents in last year’s Budget said the tax was predicted to net close to $100m each year outside of the forecast period.