GST Increase and Your Business

From 1 October 2010, the National Government increased GST (Goods and Services Tax) in New Zealand from 12.5% to 15% on all products.

By now, most businesses should have implemented the change and need to ensure all processes account for the new GST.

Many businesses are concerned about the increase. Skyrocketing prices of raw materials and manufactured goods along with decreasing consumer spending has left many wondering if further price hikes will drive customers away. As a result, many are choosing not to increase prices in-line with the increase, eating in to their already slim profit margin.

If you’re in business, you’ll need to take account of the following issues surrounding the GST increase:

First, you’ll need to decide if you’ll be raising prices to reflect the increase in GST. While many business are choosing to leave their prices as they are to retain customers, others are using the GST increase to evaluate their pricing strategy altogether, often resulting in higher overall prices reflecting both the GST increase, an increase in value of products and services, and the current financial climate.

How will the GST increase affect marketing strategies? You may wish to create a new marketing campaign around the GST increase.

Will the GST increase affect your staffing and employment? For example, you may need to pay employees overtime to cope with the additional demands of the change, or hire contractors to assist you with the change.

Will your accounting, invoicing and other software packages cope with the GST increase? You may need to update or rewrite your programmes to accommodate the new GST.

What are the legal and financial aspects of your business be affected by the GST increase?

• Companies with contracts spanning the GST increase may run into problems. If two different rates of GST apply during a contracted period, changes will need to be made to the documentation and a new payment schedule may need to be established.

• Those who issue GST inclusive contracts will need to be especially cautious.

• You may need to contact your lawyers, accountants and attorneys for advice on legal and financial matters.

The GST increase has proved a stressful event for many business owners. It’s important that any issues – especially legal and financial problems – are dealt with as soon as possible to ensure your business continues to function moving forward into 2011.