Four months not long to prepare for GST rate rise

Four months not long to prepare for GST rate rise

Businesses need to start preparing for the introduction of the new GST rate as soon as possible, says a Deloitte tax expert.

The increase in the rate of GST from 12.5% to 15% from October 1 was announced in today’s Budget by Finance Minister Bill English.

“The increase should have surprised no one,” says Deloitte tax partner Allan Bullot.

“But many businesses, particularly small to medium-sized ones, weren’t around when GST was last increased in 1989 and possibly haven’t considered all the practical implications of an increase.

“They need to be aware there is a lot of work to do in between now and October 1 – just over four months may seem a long time away but in reality it’ll fly by pretty quickly.”

Mr Bullot says businesses will need to make many critical decisions about how they prepare for the change, including issues such as pricing points, updating business systems, GST stipulations in long-term contracts, logistics around repricing consumer goods, and updating promotional material.

“The most immediate concern for the majority of SMEs, particularly those selling goods and services directly to consumers, will how much to increase prices.

“If a product retails for $9.95 now, then to maintain the same profit under the new GST rate, it would need to be sold for $10.17, which really isn’t practical for retailers,” Mr Bullot says.

“So they’re going to need to make a call about whether they absorb some of the rate rise or protect their profit margins and pass more of an increase on to consumers – by no means an easy task in this economic climate.”

If they don’t increase prices at all, they’ll lose more than 2%, he says.

Making new pricing decisions is only part of the job, as all products will need to be manually relabelled with new prices, and promotional material will need to be updated.

Business systems covering areas such as ERP, billing, purchasing, expenses, and accounting will need to be in place to reflect the change.

“This might sound simple, but in reality it is likely to be a real challenge for many businesses – particularly large, complex firms. Updating business systems is not simply a matter of substituting 12.5% for 15%.”

Businesses that do not update their systems by the changeover date are unlikely to be let off with only a warning by Inland Revenue if they’ve failed to collect the appropriate amount of GST.

ENDS

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