Goods and Services Tax (New Zealand)

[Nagesh Bajaj]

Taxation in New Zealand is collected at a national level by the Inland Revenue Department (IRD) on behalf of the Government of New Zealand. National taxes are levied on personal and business income, as well as on the supply of goods and services.

Goods and services tax (GST) is an indirect tax introduced in New Zealand on October 1, 1986 at 10%, and later increased to 12.5% on July 1, 1989, and is to be increased to 15% on October 1, 2010. This brought a major change in New Zealand taxation policy as until this point almost all revenue had been raised through direct taxes. Now 19% of the New Zealand Government's core revenue comes from GST.

Most products or services sold in New Zealand incur GST at a rate of 12.5%. End-users pay this tax on all liable goods and services directly, in that the purchase price of goods and services includes GST.

All businesses are required to register for GST once their turnover exceeds (or is likely to exceed) $60,000 per annum.

Registration for GST is required if you carry out a taxable activity and if your turnover:

• was over $60,000 for the last 12 months, or
• is expected to go over $60,000 for the next 12 months. In other words, if your turnover is $5,000 per month and you expect to maintain that level all year, you'll need to register for GST., or
• Was less than $60,000, but you include GST in your prices, e.g taxi drivers who have included 12.5% in their taxi fares.

You can even choose to register for GST if your annual turnover is less than $60,000, which is known as voluntary registration.

Procedure of GST working in New Zealand :

Charge GST in sales and income and claim it back for purchases and expenses.  During the GST return, calculate the difference to find out or work out whether  to make a GST payment or  have to receive a GST refund. The working consists of the following two points:

• Charge GST @12.5% for sales and income.  Calculate GST by dividing the sales and the income figure by 9.
•  Similarly claim GST @12.5% for purchases and expenses. Calculate GST by dividing the purchases and expenses figure by 9.

Taxable goods and services includes:

• Goods include all types of personal and real property, except money.
• Services covers everything other than goods or money, e.g. TV repairs, doctor's services and gardening services

Taxable goods and services don't include:

• goods and services supplied by businesses that aren't registered for GST, and
• exempt supplies such as:
  • rent from Domestic Accommodation.
  • interest you receive
  • donated goods and services sold by a non-profit body, and
  • certain financial services.

 GST-registered organizations only pay GST on the difference between what they sell and what they buy: income less expenditure. This is accomplished by reconciling GST received through sales and GST paid (through purchases) at regular periods typically every 2 months .However some qualifying companies may also opt for 1 month or 6 month periods. The difference is then paid to Inland Revenue Department (IRD) if the GST collected on sales is higher, or receiving a refund from IRD if the GST paid on purchases is higher

Businesses exporting goods and services from New Zealand are entitled to charge GST at zero percent. This permits the business to claim back the input GST .However, businesses that produce GST-exempt supplies are not able to claim back input GST as non-New Zealand based consumer does not pay the tax.

 The GST inclusive price is usually irrelevant for business purchasing decisions because businesses claim back their input GST. They mainly takes into consideration the cash flow issues. Consequently, wholesalers often state prices exclusive of GST, but must collect the full, GST-inclusive price when they make the sale and account to the IRD for the GST so collected.

The headline price must always be GST-inclusive in advertising and stores. The only exceptions are for businesses which claim a mainly wholesale client-base. Otherwise, displaying a prominent GST-exclusive price (i.e. larger and more obvious than the GST-inclusive price), is illegal.

Recently, GST increased to 15% in May 2010 budget which is going to be implemented from  Oct 1, 2010.  As a result, businesses will need to make many critical decisions about issues such as pricing points, updating business systems, GST stipulations in long-term contracts, logistics around repricing consumer goods, and updating promotional material. This new rate will also create challenge for tourism operators who have set their prices up to 2012.

The most immediate concern for the majority of SMEs, particularly those selling goods and services directly to consumers, will how much to increase prices.  Hence all the businesses including SMEs in New Zealand have to take crucial decisions in dealing with this new tax rate i.e.15% as Oct, 2010 is not so far away.

LAWCRUX TEAM