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12 GST thoughts of Christmas

12 GST thoughts of Christmas:

1. There’s no GST on gifts (so Santa is probably not GST registered).
2. GST registered businesses can claim back the GST on gifts they buy for staff, suppliers and customers.
3. If you buy someone a gift voucher for Christmas it’s quite likely the IRD won’t get any GST until the person redeems it.
4. If the person you gave the voucher to loses it the IRD might never get any GST.
5. On Boxing Day when you go to the shop to return the present you don’t want the retailer will be able to get a refund of GST from the IRD provided they credit you for the return.
6. However, the retailer will have to pay GST if you use the credit to buy something else.
7. The government gets a double whammy of GST when you buy alcohol for your Christmas festivities or petrol for that family road trip (because GST applies to excise taxes on alcohol and fuel).
8. If you order an expensive gift online from overseas for someone in New Zealand and have it delivered directly to them you may be giving them a GST bill because chances are they’ll have to pay GST on the value of the present before they can pick it up from Customs.
9. Businesses are given an automatic extension of time to file their November GST return so they don’t have to file it on 28 December.
10. GST registered businesses with 31 December balance dates which make exempt supplies may have to come back early from their holidays so they can calculate their annual GST adjustment due on 28 January.
11. If you’re booking an overseas holiday and have to take a domestic flight to get to your departure airport it’s best to book both flights together if you want to save the GST on the domestic flight.
12. There’s no GST on gifts but if someone gives you something expensive while overseas you might have to pay GST when you bring it back with you.

Happy Christmas everyone

Iain

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Savings up + GST collections down = GST rate up?

Kiwi households are saving more than at any time since 1995 according to the latest national accounts.

http://www.beehive.govt.nz/release/household-savings-rate-positive-five-years

The flip side is with low inflation and lower consumption the Government’s GST take is down.

I’m not an economist but my understanding is even though households may be saving more, national savings overall aren’t necessarily any better off because of the push/pull effect of private savings and tax collections.

This was something the Savings Working Group considered in their report Saving New Zealand: Reducing Vulnerabilities and Barriers to Growth and Prosperity: Final Report to the Minister of Finance published in February 2011.

As a countermeasure the Savings Working Group recommended an increase in the GST rate from 15% to 17.5% over other tax changes because GST is “less distorting than income tax on the saving decision”.

http://www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup/finalreport/30.htm

The political challenge with increasing GST to 17.5% is that our rate is already amongst the highest in the world when it comes to basic food, education, healthcare and utilities. Outside of the benefit system there doesn’t seem to be a simple mechanism to compensate low-income households for an increase in GST and this must surely put real pressure on our single rate broad-based regime.

Iain

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Taxing energy drinks unconstitutional

A recent decision in France has concluded a government tax on energy drinks contravenes the country’s constitution.

Under France’s tax laws a tax was imposed on energy drinks with at least 220 mg of caffeine per 1,000 ml.

The tax was challenged and the Constitutional Council was asked to rule.

The Council gave its decision on 19 September.

In its decision the Council indicates the goal of improving public health was the policy foundation for the tax and concludes it is acceptable, in pursuing that goal, to distinguish between drinks based on caffeine content.

However, in this case, some drinks which had higher caffeine levels than 220 mg per 1,000 ml were exempt from the tax because they weren’t “energy drinks”. This was a problem according to the Council because in effect drinks that were substantially the same in terms of caffeine content were not treated equally for tax purposes and this differential treatment was not justified.

Therefore, the Council ruled the tax is contrary to France’s Constitution.

The lesson for tax policy makers – it’s not what you do, it’s how you do it. The problem was created because caffeine was used as the determinant for imposing the tax. If a characteristic unique to “energy drinks” had been used instead then it’s possible a different outcome might have been reached.

Iain

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Election 2014 – your GST vote

This weekend’s New Zealand general election offers some choice in GST policy.

So, if you’re a GST geek like me you might be swayed by what the different parties intend doing about GST.

Here’s what I’ve been able to find out about some of the main parties’ GST policies:

Labour Party – no change to base or rates. Committed to simplifying compliance and supports “one hour, one return, one payment” principle for monthly GST and income tax compliance.

Green Party – no change to base or rates. Propose extra ecological taxes but will leave detail to a commission. Also, propose financial transaction tax. [comment – subject to seeing the detail, the existing GST system could be one way of achieving these new tax imposts].

National Party – no change to base or rates.

Mana Party – propose abolition of GST and replace with “Hone Heke Tax” on financial speculation.

Maori Party – will revisit removing GST on healthy food (fruit and veges) and also increasing GST on sugary drinks.

I couldn’t find any detail from other parties. If anyone knows any more feel free to comment.

Cheers and happy voting on Saturday Kiwis

Iain

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Good news for Australian tiramisu lovers

The Australian Tax Office publishes a detailed food list which, over 88 pages, gives their opinion on the GST status of everything from abalone to zabaglione.

Tiramisu was on the list as subject to GST. However, on 27 August the Tax Office removed tiramisu from the list.

This means from now on not all tiramisu products are subject to GST in Australia. Some are “GST free”.

This is fantastic news for tiramisu lovers and no doubt there’ll now be something resembling a gold rush on GST free tiramisu products!

Sometimes I wish we had GST exemptions for food in New Zealand, even if just to give IRD workers the chance to think about fascinating questions such as whether tiramisu is subject to GST.

Our GST system seems so mundane by comparison, but, honestly, would we really want it any other way?

Iain

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Fat taxes have support

A NZ Herald/Digi Polls finds support for fat taxes: http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11298134

To have any real behavioural impact a fat tax needs to be at least 20%: http://iainblakeley.com/tag/fat-tax/

Iain

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NZ First GST policy

Removing GST from food is back on the political agenda thanks to Winston Peters’ announcement yesterday.

Recent calls for GST free food have focussed on the health aspects. This doesn’t seem to be a prime motivator for NZ First but it does appear the policy would not extend to removing GST from fizzy drinks and some other sugary foods.

NZ First’s stated objective is to lower the cost of food for low income households.

Voters need more information on this. Overseas research I’ve seen suggests removing tax on food has an immediate downward impact on prices but it is shortlived. Within several months prices tend to move back close to the levels they were at when the tax applied.

Also, those who benefit most from removing GST on food are those who spend the most, a bigger subsidy for high income households.

Then there are the compliance complexities of different GST rates for different types of food. The overall costs to government (taxpayers) of collecting GST will go up. GST will become less efficient and tax advisors will be busier.

Overall I think there are probably more effective ways to provide relief for low income households but it’s a good debate to have given New Zealand’s comparatively high GST rate on food.

Iain