Businesses need to start preparing for the introduction of the new GST rate as soon as possible, say tax experts.The increase in the rate of GST from 12.5 percent to 15 percent from October 1 was announced in today's budget by Finance Minister Bill Englis
Businesses need to start preparing for the introduction of the new GST rate as soon as possible, say tax experts.
The increase in the rate of GST from 12.5 percent to 15 percent from October 1 was announced in today's budget by Finance Minister Bill English.
Businesses will need to quickly think through the implications and implement the necessary changes, said KPMG tax partner and head of GST Peter Scott.
"While we believe that raising revenue from GST is a sensible approach, with only four months until implementation, New Zealand businesses have not been given much time," he said.
Deloitte tax partner Allan Bullot said the increase should have surprised no one.
"But many businesses, particularly small to medium-sized ones, weren't around when GST was last increased in 1989 and possibly haven't considered all the practical implications of an increase.
"They need to be aware there is a lot of work to do in between now and October 1 - just over four months may seem a long time away but in reality it'll fly by pretty quickly."
Mr Bullot said businesses would need to make many critical decisions about how they prepare for the change, including issues such as pricing points, updating business systems, GST stipulations in long-term contracts, logistics around repricing consumer goods, and updating promotional material.
The most immediate concern for most, particularly those selling goods and services directly to consumers, would be how much to increase prices.
"If a product retails for $9.95 now, then to maintain the same profit under the new GST rate, it would need to be sold for $10.17, which really isn't practical for retailers," Mr Bullot said.
"So they're going to need to make a call about whether they absorb some of the rate rise or protect their profit margins and pass more of an increase on to consumers - by no means an easy task in this economic climate."
Mr Bullot said if they did not increase prices they would lose more than 2 percent.
Business systems would need to be in place to reflect the change.
"This might sound simple, but in reality it is likely to be a real challenge for many businesses - particularly large, complex firms," Mr Bullot said.
"Updating business systems is not simply a matter of substituting 12.5 percent for 15 percent."
"Businesses that do not update their systems by the changeover date are unlikely to be let off with only a warning by Inland Revenue if they've failed to collect the appropriate amount of GST," he warned.
