On October 1, GST will rise to 15 per cent. The Business Herald is running a series of articles to help prepare for the change. Today Phil O'Reilly looks at how tax cuts will offset the impact.
As the GST increase comes closer, many businesses will be adjusting their systems.
Updating computer systems, repricing and retagging merchandise, changing promotional and advertising material, adjusting supplier and other contracts, and training staff are some of the factors that need attention as October approaches.
Some businesses will have extra complexities to deal with, including layby contracts and other commercial arrangements that straddle the date of introduction.
It will be important to be prepared as soon as possible and to get professional advice where needed.
An increase in the level of GST will be new territory to many businesses that weren't around the last time it was increased in 1989. Some may be apprehensive that the increase will depress buying behaviour in an already cautious marketplace.
This wasn't the experience in 1989 however, and there was not a large impact on buying behaviour - and this time round there will be the additional offsetting factor of personal tax cuts.
Generally, personal tax cuts, resulting in more money being in circulation, can be expected to do a lot to offset the GST rise.
Retailers and small businesses are the ones most likely to benefit from more money in circulation.
Most small businesses and retailers that are taxed at the top personal rate will themselves enjoy the personal tax cuts alongside other taxpayers - and those that are taxed at the corporate tax rate will have the further benefit of the new 28 per cent rate.
Reducing personal and corporate tax rates to offset increased GST brings more efficiency to the tax system, as it reduces the opportunity for tax avoidance.
It is also positive for economic growth, as more money in people's pockets from tax cuts allows for more savings and productive investments. While the GST increase will bring extra compliance responsibilities for businesses over the short term, proper preparation will reduce the impact.
In the longer term, this change in the tax system should work to the benefit of consumers, business and the economy.
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The Weekend Herald's Business section was not delivered to some areas of Auckland on Saturday due to a printing disruption caused by bad weather. The section included a special feature about GST changes, which can be found at www.businessherald.co.nz.
Phil O'Reilly is chief executive of Business NZ. Information provided in association with MYOB.
