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Goodbye 12.5%!

The last day of 12.5% standard GST in New Zealand. We’ve been dividing by nine since 1989 to calculate the GST portion of a GST inclusive price. From tomorrow we’ll have to multiply by 3/23.

I sense some panic starting to appear, particularly for the unprepared. I’ve been getting calls nearly half hourly.

It’s amazing some businesses are only now just starting to think about what the increase means. Some of them may not even be able to cope when they have to issue invoices tomorrow at the new rate, not to mention credit notes at the old rate as well!

As businesses start work on their September GST return (the last at 12.5%) which they have to file by 28 October it’s likely more and more issues will arise. In November when work starts on the October return (the first at 15%) the phones to advisors could be running red hot. It’s always the small practical details which get overlooked when the seminars and workshops are given. Once you sit down and actually have to start working out how much GST you have to pay and where on your October GST return you claim expenses for invoices which charged GST at 12.5% that you appreciate the potential fishhooks.

Businesses registered on a payments or cash basis for GST have a really difficult job and could even be out of pocket for a while because of the complicated adjustment they have to calculate for their creditors and debtors.

Everyone’s looking for a commercially pragmatic and practical solution to a variety of little compliance issues. Often there is actually no net GST cost involved. It’s simply a matter of getting the documentation and compliance right. This sort of activity is unproductive. Time and energy going into statutory compliance which produces no net value for business or for the Government.

Thankfully it appears the IRD is prepared to be pragmatic about some of these things as long as there’s a clear paper trail and the right tax is paid in the end it seems they may exercise a little tolerance. My suggestion is, if you’re having difficulty working out what to do contact someone at the IRD and talk it through with them (and make a note of their name and the conversation) or speak to your usual tax advisor.

Iain

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