GST increase would throw cat among pigeons

An increase in GST would cause major disruption to businesses, says one of the country's GST specialists.

One option being increasingly touted as part of the government's reviews of tax rates is an increase in GST from its present level of 12.50% to 15%.

The Tax Working Group, set up by the government and Victoria University, has looked at this issue and, although it has come to no firm conclusions yet, has indicated it is an option as part of a broader tax reform package.

More than 630,000 entities are GST registered, Deloitte tax specialist Alan Bullot told the New Zealand Institute of Chartered Accountants' (NZICA) annual tax conference.

"New Zealand's last increase in GST was 20 years ago, and due to the stability of the GST rate many companies have developed their own systems and spreadsheets with the GST rate as a fixed value. An increase in GST would require all business to review their systems that calculate GST and modify this to take into account the increase. This could be time-consuming and costly."

There would also be a significant impact on businesses' profit margins, he said.

"For an item that is currently available for $9.95 (including GST) and is kept at $9.95 after GST is increased to say 15%, the retailer would have to suffer a 2.20% decrease in its gross revenue after GST. To keep the profit margin at the same level the product price would need to be increased to $10.17."

Firms will also have contractual issues to consider from now, simply because a GST change is being considered.

The current law includes a clause saying existing contracts would be automatically modified if there is any change in GST to take account of the change - unless the contract itself specifically contemplates a change in the GST rate.

As for whether a change should be made, Bullot told the conference "as a GST practitioner I am of course hopelessly biased and conflicted so I cannot really comment.

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