New rules aim to make GST transition easier for businesses

New transitional rules will allow businesses in certain industries to carry on accounting for GST at 12.5 per cent after October 1.

The rate rises to 15 per cent on that date.

But the exemption is because some billing systems for utility and telecommunications companies generate invoices at the end of the month but only mail the statements out the following month.

The transitional rules will mean that even though a bill is due to be paid in October, when the new rate applies, if it is for services or goods provided in September the old 12.5 per cent GST rate will be charged.

Changes to how lay-by sales will be treated from October 1 were also announced by Revenue Minister Peter Dunne yesterday.

Any lay-by sales entered before the May 20 Budget announcement will incur a GST rate of 12.5 per cent on payments made on or before September 30.

The remaining payments after October 1 will be charged at the new rate of 15 per cent, meaning customers could pay an additional 2.5 per cent GST, depending on whether businesses charge this on or absorb the cost themselves.

Businesses needed to think about how the proposed amendments to the GST Act could affect them and start making allowances to ensure the process ticks over smoothly, the New Zealand Retailers Association chief executive John Albertson said.

The most difficult transition for businesses will be ensuring software is updated, and that the new rate is recorded as 15 per cent on all receipts as of October 1, he said.

Albertson said many businesses may choose to keep products at the same price after October 1, meaning the base price will be reduced while GST is increased.

This could be done to prevent customers going elsewhere for competitive products, and the loss could be rolled out to other parts of the business to make up costs.

"I suspect most of them will look to take the simplest way and forgo some margin, as it will be only [now] a modest amount."

Albertson said for the majority of retailers it will be "business as usual" and the level of discounting and competition will continue.

PricewaterhouseCoopers GST partner Eugen Trombitas said although some businesses would have already made commercial, pricing and systems decisions before October 1, the new rules would provide greater clarity for a wide range of industries.

"New Zealand consumers and businesses ... are affected by the GST rate increase. Managing and implementing the GST rules will be essential to successful GST rate transition, and there is a need to move swiftly to avoid unnecessary problems," Trombitas said.

Retailers should be encouraging customers to pay lay-bys off before October 1, to prevent them from absorbing the increased rate or passing that on to the customer, Trombitas said.

"It will be very tough on customer relationships [if they pass the GST increase on]."

The public have until Monday to comment on the draft legislation.

THE MOVES
* The Cabinet approved amendments to the new GST Act on Monday.
* Revenue Minister Peter Dunne announced the new transitional rules yesterday.
* Amendments will go to the Cabinet to be approved on Monday.
* Industry says the proposed changes provide greater clarity.
* Certain industries will continue to use 12.5 per cent rate after October 1.