News

Would you like some GST with that?

Date: 26/03/2010

A lot of attention has been given to two main proposals by the Government which they are due to fully announce in the May Budget. These issues are a possible increase in GST and a change in the rules governing the rental property market. We will cover the property market changes in a separate article.

Based on comments coming from the Beehive, it appears inevitable that there will be an increase in GST from 12.5% - 15%. This increase could commence in October this year, which would coincide ‘nicely’ with the introduction of GST back on 1 October 1986.

The impacts are far reaching and it is important that you consider the potential impact on your business and start to plan for it. Pretty much everything we pay for (with the exception of financial services e.g. interest, bank fees etc) will increase in price. As a business owner you need to decide if you will pass this onto your customers. What will your competitors be doing? You will need to consider the issue of pricing very carefully.

To ensure you don’t get trapped with regard to pricing, you will need to be careful about how you advertise/state your price. If your price is “plus GST,” then you would have the right to increase your price to account for the increase in GST. You should ensure that all your contract pricing is expressed as “plus GST.”

As a consumer, you will be hoping that the Government adequately compensates you through tax cuts to assist in funding the increase cost. It will affect everything from groceries, to parking, to council rates.

But are there some potential opportunities out there? Perhaps you could encourage client to pay some deposits up front before the increase in GST. This could have a good impact on cash flow.

For BHW clients who are not GST registered, it might be a time to consider getting your information to us as early as possible so that our invoices are at the 12.5% GST rate.

Businesses will need to think as their customers might when it comes to GST increase. It could be expected that there might be a “spend up” before any increase in GST on consumer goods for the home. It could also be expected that after any increase in GST there is a decrease in customer demand as consumers show their resistance to paying for the GST increase.

For those businesses that are GST registered, you will have the ability to claim back all GST you pay on business expenses in the normal manner. As such, any increase in GST should not have an impact on your business expenditure.

So as a business you need to be prepared to look at opportunities that might arise from an increase in consumer demand – how do you capture a piece of this action? You then need to be ready to face a potential down turn in business after the rate increase. How will you survive this?

Now would also be a good time to consider if your computer system will be able to handle an increase in GST. You should talk to your software provider about this. If you need to upgrade your accounting software, we are ready to help you with that transition.

We encourage you to take this time to consider the impacts of a GST increase and start to plan how you might best meet this new challenge.