GST increase creates challenges for tourism operators
Increasing GST from 1 October will create challenges for tourism operators who have set their prices up to 2012, the
Tourism Industry Association New Zealand (TIA) says.
“The tourism industry applauded the commitment to tourism showed by the Prime Minister’s pre-Budget announcement last
week of an additional $30 million for international marketing. Operators will also welcome the cut in company tax rates.
“But today’s GST increase will create transitional issues as tourism operators working in the international marketplace
set their contracts up to two years in advance. They will now need to decide whether they can raise those prices to take
account of today’s increase in GST or whether to absorb the increase,” TIA Chief Executive Tim Cossar says.
Operators who have already taken bookings after 1 October are also asking whether they will now need to charge the GST
increase. TIA, the Inbound Tour Operators Council (ITOC) and the New Zealand Hotel Council (NZHC) have been working with
PriceWaterhouseCoopers to prepare an advice paper for members on the various technical aspects of accounting for the
increase in GST. Some examples are attached, with further advice available to members on TIA’s website www.tianz.org.nz
The GST increase could impact on New Zealand’s relative competitiveness with other international destinations, Mr Cossar
says.
“While we don’t think the increase will deter visitors from coming here, it may influence how much they spend while
here.”
The government currently collects about $633 million in GST a year from international visitors. Increasing GST to 15% is
set to increase this contribution to about $760 million a year.
The GST increase may also impact on domestic tourism, though this may be offset by the reduction in personal taxes, Mr
Cossar says.
The latest Fly Buys/Colmar Brunton Mood of the New Zealand Traveller survey, which will be released by TIA next week,
shows that 34% of New Zealanders said a GST increase would have no impact on their holiday spending.
29% of New Zealanders expected to cut back on their holiday spending if GST was increased. A further 24% of respondents
said a GST increase would make them less likely to go on holiday.
“As we recover from the recession and work to keep increasing tourism’s contribution to the economy, the industry will
be working hard to show both international visitors and New Zealanders that a holiday in New Zealand still represents
value for money,” Mr Cossar says.
Examples for tourism operators of the effects of the GST increase
i) A deposit is paid prior to 1 October for a booking after 1 October
ii)
James makes a booking today for accommodation at Drive Inn Motor Park over Labour Weekend (23-25 Oct) and pays a deposit
equal to one night’s accommodation. If James cancels his booking with more than 48 hours notice then he receives a full
refund.
The deposit received today by Drive Inn constitutes payment under s9 of the Act, therefore triggering the time of
supply, and crystallising the GST rate at 12.5% on the full value of the supply. Drive Inn will be required to account
for GST on the full value of the supply – not just the amount of the deposit. The refundable nature of the deposit is
irrelevant in determining the time of supply.
iii) A confirmation email is sent prior to 1 October in respect of a booking after 1 October
iv)
NZ Sea Cruises receives a booking on August 21 from Sarah for a two night cruise in November. NZ Sea Cruises issues a
confirmation email which includes the cost for the booking which is payable at the time of the cruise.
Because no payment has been made, the time of supply has not been triggered, and NZ Sea Cruises is required to apply the
higher GST rate at the time of payment.
Where NZ Sea Cruises is required to account for GST at the higher rate, they would be entitled to add the additional GST
to the amount due as long as their contract with Sarah did not expressly preclude them from doing so.
Examples compiled by PriceWaterhouseCoopers for TIA, ITOC and NZHC. More details available at www.tianz.org.nz
ENDS