Goods and Services Tax (New Zealand)

Goods and Services Tax (GST) is a value added 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.

End-users pay this tax on all liable goods and services directly, in that the purchase price of goods and services includes GST.

GST-registered organisations only pay GST on the difference between GST-liable sales and GST-liable supplies (i.e., they 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, with some qualifying companies opting for 1 month or 6 month periods), then either paying the difference 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.

Unlike most similar taxation regimes, there are few exemptions - all types of food are taxed at the same rate, for example. Exceptions include rents collected on residential rental properties, donations and financial services.

Businesses exporting goods and services from New Zealand are entitled to "zero-rate" their products - effectively, they charge GST at zero percent. This permits the business to claim back the input GST but the eventual, non-New Zealand based consumer does not pay the tax (businesses that produce GST-exempt supplies are not able to claim back input GST.)

Because businesses claim back their input GST, the GST inclusive price is usually irrelevant for business purchasing decisions, other than in relation to 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.

Prime Minister, John Key has advised the government was considering a rise in GST to no more that 15% to be announced at the time of the New Zealand budget in May 2010. It has been outlined any increase to GST would be accompanied by reductions in personal taxes, widely expected to take effect from the start of the April 2011 financial year. Unlike Australia, which exempts basic food items from GST, no indication has been given that the New Zealand government is willing to follow this path, calling exemption'too problematic'. However a study of the UK's VAT system, in which most food is GST free, has proved compliance costs to be less expensive to administer than New Zealand's current scheme, despite the high number of VAT exemptions that exist. [Kenny, P. (2000). The GST food exemption. p.426.]

See also

• Taxation in New Zealand
• Goods and Services Tax (Australia)
• Goods and Services Tax (Canada)
• Goods and Services Tax (Hong Kong)
• Goods and Services Tax (Singapore)

External links

• Inland Revenue GST site
• Treasury Taxation Overview