History on GST and Tax Returns in New Zealand
Interested in the History of GST and Tax Returns..? GST, short for Goods and Services Tax was first introduced in France on 10 April 1954.
Today nearly 140 countries have it in some form. It is also known as VAT which is short for Value Added Tax in some countries. GST is an indirect tax which is imposed on goods and services at each stage of production. GST ends with the final user and is collected by the seller of the goods or services and passed onto the government via Inland Revenue Department. GST/VAT was introduced for different reason in each country. France introduced VAT because it had very high sales tax and tariffs which encouraged cheating and smuggling. VAT was appropriate in France to stop cheaters and smugglers.
Other countries introduced GST/VAT in order to increase its Governments revenue. This intention was certainly achieved as it can be seen in New Zealand. When GST was introduced in New Zealand in1987 it yielded revenues that were 45 per cent higher than anticipated .New Zealand and Singapore tax virtually everything at a single rate. On the other hand Indonesia has five positive rates, a Zero rate and over 30 exemptions. When we look at international level, the highest GST rates are in Sweden and Denmark at 25 per cent. Most countries have GST/Vat rates that are less than 20 per cent. Countries at higher GST rates are Iceland at 24.5 per cent and Finland at 22 per cent, while those at the lower end are Switzerland, Japan, Thailand and Singapore have GST/VAT rates are at 5 per cent or marginally above. However, most countries have GST/VAT at rates that are less than 20 percent.
According to a research2 taken in 2011 by KPMG international, it was discovered that New Zealand GST rate the 4th lowest in the OECD despite the increase from 12.5 per cent to 15 per cent. A full list of countries with GST/VAT is included in Appendix 1 at the back of this essay.3 New Zealand has a broad base GST. The only thing that does not have GST is residential rental which is exempt and financial services where GST is charged at Zero per cent. There is not GST for online shopping which is growing every day.
There have been talks about removing GST on some food items in New Zealand. Whether the talks are genuine for the benefit of taxpayers or political one must take into consideration the sector of community that needs to benefit from this decision of removing GST on certain food items. If it does happen and GST is narrowed down there will be a loss of revenue for the Government. To offset this loss the government will have to look at other means of generating income. Instead of increasing income tax New Zealand could bring everything into the GST net. First it could remove residential rental properties from exempt supplies to be taxed at 15 per cent GST. One must see that commercial properties are taxed at 15 per
cent GST then why not residential properties. This will generate GST revenue that would be lost by removing GST on food items.
If we have come this far in broadening our GST why take another step and remove zero rating and tax everything at 15 per cent. This would mean bringing all financial services into the 15 per cent GST net. Another most important transaction that needs to be in the GST net is online shopping. Since online shopping is increasing the Government must look into introducing GST for all transactions that happen via internet.
Whether New Zealand broadens or narrows its GST, costs must not outweigh benefit and also that its GST system is in line internationally. The Government will have to revisit its threshold for GST registration as with residential rental the annual turnover will not be anywhere near $60,000.00 unless a single landlord has more than 3 or 4 properties in major cities. At the end of the day as with any policy there are advantages and disadvantages, but there has to be more advantages and be in the best interest of the taxpayers and community at large.
If your interested in processing GST and tax returns for your business. Contact the specialist tax team at Moonlight, Chartered Accountants in Manukau. We can also assist you to migrate your accounts through to Xero as we are Xero Accountants