Confusion over GST charged by utilities

Confusion over GST charged by utilities illustrates rate change complexities

The confusion this week over how GST is charged by utility companies illustrates some of the complexities consequent of the rate change, a Deloitte tax expert says.

The general rule is that invoices dated after 1 October 2010 have to have GST charged at 15% regardless of when the goods or services were supplied, Deloitte GST tax partner Allan Bullot says.

“Utility companies that have charged GST at 15% on invoices dated from 1 October have treated the transaction correctly for GST purposes and have not overcharged their customers,” Mr Bullot says.

A transitional provision was introduced that allowed, but only in certain circumstances, invoices to be backdated to 30 September and for the 12.5% rate to apply provided those invoices were issued by Monday 11 October.

“This transitional provision was introduced primarily for small businesses. It allowed a business which issued invoices only once a month extra time to do the September billing round at the 12.5% GST rate, provided that the invoices were dated 30 September and it was normal practice for the business to backdate its invoices in this manner.

“Unlike a small business, a utility company will generally not issue all of its invoices on a single day. Instead it will have up to 20 billing cycles in a month and be issuing bills to customers throughout the month.”

For example, a power company may have one customer with a billing cycle running from the first day of the month to the end of the month whereas another customer’s billing cycle may run from the fifth of the month to the fourth of the following month, he says.

More importantly, it is also not normal practice for utilities to backdate their invoices but to instead date them with the date they are produced.

“It would cost a large organisation, such as a utility company with tens or hundreds of thousands of customers, a significant amount and require substantive one-off systems changes to try to manually change its billing system for a one-off change.”

In many cases it would also be physically impossible to obtain accurate meter readings for all customers up to 30 September, rather than as part of their normal billing cycle.

“These costs would inevitably either have to be absorbed or passed on to consumers, and would most likely be higher than the “extra” GST collected otherwise,” Mr Bullot says.

“While it is understandable that consumers may feel hard done by that their power which was consumed in September and billed for in October is charged at the 15% GST rate, rather than at 12.5%, but this is just an inevitable one-off consequence of the rate change.”

It is important to note that the utility companies will not profit by charging the higher rate of GST, as the GST collected is passed on to the Government.

ENDS

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