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Iain Blakeley, director of tax, Ernst & Young, says
there are 27 areas impacted by the GST increase to 15
percent.
Among them were long term contracts.
"Some contracts will span the changeover date. Lay-by
sales are a good example. If you're putting something on
lay-by now for Christmas, there'll be a price agreed
already. The retailer has to pay the GST on the sale to
the IRD when the customer picks them up which is likely
to be after the October 1 rate change," says Blakeley.
The extra GST is either passed on to the customer - an
extra payment they might not be expecting - or the
retailer will have to absorb the extra cost.
"Shoppers will be thinking about the timing of their
purchases and considering the benefits of bringing them
forward to save the extra GST. This mainly affects
retailers who will be trying to predict what extra stock
levels they may need for people wanting to get some
extra early Christmas shopping done this year."
Regarding pricing, the ability to pass on the increase
to customers can't be assumed. "The GST legislation has
special rules allowing most suppliers to pass the
increase on to their customers. However there are
exceptions to that and of course there are also
commercial realities," he says.
"Then there's the physical exercise of re-pricing items.
This can be a huge job for some retailers. Those who are
open for business at midnight on the changeover date
will have an interesting night."
Some retail products made overseas are pre-labelled and
there will be some being ordered now which are due to be
sold in New Zealand during the Christmas peak. The
labelled prices will have to take the increase into
account or new labels will have to be put on them.
"Pricing is a fascinating area because the reality of
the commercial world is prices are not solely set by
whatever the retailer's costs are plus a margin. The
price is also likely to be a reflection of what
consumers are prepared to pay and what competitors
charge. A retailer has to decide whether the item they
marketed for $9.95 (GST inclusive) will be able to sell
at $10.20 after the increase."
Another consideration was internal systems. All GST
registered businesses have to re-calibrate their
financial accounting systems. They will need to be able
to cope with the old and new GST rates together for a
period where, for example, goods bought before the
change are returned afterwards. "This isn't a huge issue
but details can be missed. Small to medium businesses
that use off-the-shelf financial reporting packages are
likely to receive support and back-up from their product
supplier," says Blakeley.
"The industries most likely to face complex issues with
their systems are financial service providers (like
banks), residential accommodation providers such as
retirement villages, life insurers and leasing
companies."
Inbound tour operators, for example, will be selling
packages now for next year's Rugby World Cup. "They are
committed to prices which were probably agreed even
before a GST increase was first floated. Their reality
is they will not be able to get any extra payment out of
their customers. This means they will have to cover the
increase out of their profit margin. In some cases that
could put them into loss."
Source:
Stuff.co.nz, New Zealand, dated 20/05/2010
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