, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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

, , , , , , ,

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

, , , , , , , , ,

“Australia should follow NZ GST”?

NZ’s GST is certainly the most efficient form of VAT in the world.

The “VAT Revenue Ratio” is used by the OECD as a measure of VAT efficiency. The average in the OECD is about 50%.

The least efficient is Turkey’s VAT at about 30%. NZ ranks top at a little more than 95%, followed closely by Luxembourg.

Australia’s VAT Revenue Ratio is around 45%.

The Australian Treasury Secretary thinks they can learn from NZ’s GST and argues for a further shift in Australia from income taxes to GST. See: http://www.stuff.co.nz/business/world/9900014/Aussies-should-follow-our-GST-lead

If efficiency is the goal then the evidence seems compellingly in favour of the Secretary’s argument.

However, political realities seem to pull most countries in the opposite direction.

Yes VAT is spreading around the world as the tax of choice for governments but, increasingly those governments are voting for multiple rates, exemptions and zero rating when designing their version of VAT.

When the GFC hit we saw governments making greater use of reduced rates to stimulate activitiy. There is now a growing trend to use penal VAT rates as policy tools to discourage certain “undesirable” consumption (e.g for environmental reasons). Policies like these make a VAT system less efficient but they also make it more politically acceptable and relevant.

Perhaps the questions are: how long can NZ resist these political pressures and is it more likely we will follow the Aussie lead?

Iain

, , ,

Labour Party drops GST policy on food

Labour has officially abandoned its policy to remove GST from fresh fruit and vegetables. See here:
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11190292

Anyone who has heard David Cunliffe speak on tax policy since he was appointed Labour’s leader should have seen this coming. He’s never really been a big supporter of the proposal so far as I’ve observed.

Some GST consultants might have held out hope the policy would go through for the sake of their own pockets. It certainly had potential to create some interesting work for lawyers and other advisors.

New Zealand’s approach of keeping exceptions to GST to as few as possible is undoubtedly preferable from a tax system design perspective. This decision by the Labour Party is good news for the country because it means our GST system will not lose some of its current efficiency. If fresh fruit and vegetables were exempt from GST a greater proportion of every dollar collected by the tax would be spent on administration and compliance.

Having said that, many countries have learnt to cope with exceptions for food and there are ways of achieving the policy outcomes Labour was seeking without creating an administration and compliance nightmare for taxpayers and the IRD. It’s certainly something we may have to consider should a future government be tempted to increase the GST rate further.

Iain

, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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

, , ,

GST exemption gaining momentum?

Today’s presentation of a petition to Parliament for GST to be removed from food shows debate around this is only going to intensify leading up to the election.

It seems there’s support coming from Maori and Mana Parties and the Greens. With Labour’s stated policy to remove GST from fresh fruit and vegetables there is growing public sentiment which National may find hard to bat away should they be forced into tough post election negotiations to stay in Government.

Of course it’s not just low income households which would benefit. The biggest spenders would save the most. So it could be a real vote winner.

Iain

, , , , , ,

The great New Zealand GST myth?

“Single rate, broad based” is the catch phrase of New Zealand’s GST system but is it really true?

There are now 9 GST rates applying in New Zealand as determined in the legislation or by IRD decree.

They are 0%, 7.5%, 9%, 10.25%, 10.75%, 12.3%, 12.5%, 12.9% and 15%.

Sure some of these rates apply only in pretty specific situations but most businesses need to have systems capable of handling at least 3 of them at any time.

As for “broad based”; financial services, residential accommodation and fine metals are current exemptions and with Labour’s promise to remove GST from “fresh fruit and vegetables” this too could become a misnomer.

Iain

, , , ,

NZ GST landscape changes

Following Labour leader Phil Goff’s confirmation yesterday his party will remove GST on fresh fruit and vegetables if elected later this year the New Zealand GST landscape has changed significantly.

Since 1986 when the Labour Party first gave us GST there has been bi-partisan agreement with the desirability of keeping a single rate broad-based system. That’s all changed now Labour has committed to moving away from a feature of our system’s design which is admired around the world.

As our standard GST rate crept up I guess it’s not surprising pressure mounted to have exemptions, especially given the regressive nature of GST. We have the 5th highest GST rate on basic food in the OECD. Most countries use a reduced or zero rate for basic food so it was probably only a matter of time before we could no longer resist the pressure.

I wonder though whether this could be a taste of things to come. Once politicians gain an appetite for multiple GST rates following Labour’s lead could we see greater use of this policy tool? Surely it will be tempting to impose higher rates on luxury goods for example as a means to bolster depleting tax collections?

So, who likes Phil Goff’s policy of removing GST on fresh fruit and vegetables?

Iain

, ,

Fiji VAT to 15%

Fiji is raising VAT from 12.5% to 15% from 1 January 2011. This was announced last Friday and gives businesses very little time to get ready for the increase. It will be interesting to see how they go and whether transitional measures similar to those introduced in New Zealand will be used to deal with insurance contracts and the like. Even with those concessions there have been grumbles from consumers in New Zealand annoyed at paying the new rate on goods and services (particularly utilities) they received before the rate change date.

Fiji’s businesses have more recent experience with VAT rate changes than New Zealand businesses with their last rate change being in 2003. So there’s every chance this won’t phase them too much. They also have some quite good transitional measures from when VAT was first introduced there in 1992 which they could call upon.

With 1 January falling on a Saturday perhaps things will be a little simpler but I feel for those who are now going to have to work extra hours over the holiday period to get everything ready. If consumers decide to go on a pre-rate rise spending spree there could be a xmas shopping bonanza for retailers but some may find the short lead in means they don’t have time to stock up in anticipation.

The refund scheme for tourists has also been extended so that the minimum qualifying expenditure limit applies to a tourist’s entire stay rather than as a daily limit.

Supplies of fish to Fiji fish processors will be exempt from VAT in future.

There are lots of other tax and duty changes in last week’s Fiji Budget with the other big news being the proposed introduction of a capital gains tax from 1 February 2011.

Iain

,

The habits of the average consumer

More details are available on how we spent our money in the September quarter. While the increased spending wasn’t close to the predictions of Treasury consumers seem to have had a bit of a splurge on furniture and appliances which helped bring the overall numbers up slightly.

NZ Herald

Economists are still predicting sluggish spending in the short to medium term. See my last post on this topic but I’m predicting an increase in consumer activity in the immediate post GST rise period. Swimming against the tide again – will be interesting to see if some confidence really does return.

Iain