GST in New Zealand is supposed to be simple and everyone thought all they had to do to implement the new rate on 1 October was flick a switch in their computer system.
Recent press coverage suggests the change is more than a simple computer or accounting adjustment.
Marketing and customer relations are also impacted. Consumers of utility companies are reportedly surprised at getting invoices for their September usage which charge GST at the new 15% rate: NZ Herald
The utility companies are simply complying with the law. Generally businesses have to apply the GST rate in force when they issue invoices (subject to a few special exceptions).
This problem was identified before 1 October and the Government passed a transitional rule which allowed businesses to issue invoices up until 11 October at the old 12.5% rate. The intention was this would cover those invoices issued after month end for goods and services provided during the previous month. A lot of small business owners don’t have sophisticated computer based billing systems and do their monthly invoices at the dining room table during the weekends immediately following the end of the month. This rule gave them two weekends to get their September invoices out at the 12.5% rate.
Now major utility companies don’t have staff sitting around dining room tables over the weekend writing up invoices. But they probably have systems generating invoices immediately after month end for the prior month.
In this instance they are saying they didn’t have time to read everyone’s meter before 30 September and therefore couldn’t apply the transitional rule and use the old rate. I have some sympathy with this but there are a number of points worth making:
1. The press coverage suggests consumers have already received invoices for September. Given it’s only 14 October now presumably many of those invoices were actually issued by the companies before 11 October. So they definitely had time to issue invoices for September by 11 October. I know from personal experience many invoices from utility co’s are based on estimates rather than actual readings. If those invoices were issued before 11 October then all the companies had to do was put a 30 September date on them and the 12.5% transitional rate probably could have been used.
2. Consumers, had they been aware, could have forced their utility providers to use the 12.5% by making a payment on account of their September usage before 1 October. Then, regardless of when the company issues the invoice for September, the GST rate they have to apply would be 12.5%. It’s likely though not many consumers would have known about that.
3. Actual meter readings weren’t necessary to take advantage of the transitional rule. The companies could easily have issued estimated invoices before 11 October at the old rate. Even if they overestimated the excess could be treated as a prepayment of October usage and the 12.5% rate still could have been applied to the entire invoice.
4. The transitional measure introduced by the Government was optional. Why? If the Government thinks it is unfair of utility companies to follow the usual GST law and not take advantage of the transitional rule why didn’t they make that rule compulsory?
5. The 11 day rule in my view is unnecessarily arbitrary. In 1986 there was a transitional rule which essentially said if goods changed hands or services were supplied before 1 October 1986 GST did not apply even if the invoice was issued after that date. All the Government had to do was re-enact that rule this time around. Utility companies would be required to invoice at the old GST rate for goods and services supplied before 1 October 2010 even where they invoice much later. I don’t understand why these old rules, which worked pretty well at the time, weren’t used instead of spending a lot of time and money coming up with fancy new ones.
6. Revenue Minister, Hon. Peter Dunne, says it is “unfair” for utility companies to be charging GST at the new rate on September usage even though those companies are complying with the law. He’s called on them to credit the extra GST back to their customers. Surely then it’s “unfair” for the Government to take that extra GST from the utility companies who have not done anything wrong? I’d like to see the Minister come out boldly and say the Government, through Inland Revenue, will refund to utility companies any extra GST they credit back to their consumers. Unless they do it seems to me the Government is benefitting from practices it says are “unfair”.
Barrister, Director and Consultant specialising in tax, family enterprise governance and succession, helping start ups and entrepreneurial enterprises grow safely and international expert on value added tax policy and implementation.