GST transitional “fixes” may pose challenge

GST transitional “fixes” may pose significant challenges for some businesses

Length of time to alter systems means October 1 deadline tight

Steps to smooth the transition of the GST rate change announced this week will catch out some businesses, a Deloitte tax expert says.

Measures introduced by the Inland Revenue Department this week are mostly adjustments to the “time of supply” rules around the GST rate increase from 12.5% to 15% on October 1.

The changes are welcomed in general, but there may be practical difficulty in their implementation for many businesses.

Deloitte GST tax partner Allan Bullot says there is some concern and confusion in the market about the implications of the recent announcements.

“There are some fishhooks for businesses, particularly those that were quite advanced in their planning for the rate change and are now impacted by these new transitional measures,” Mr Bullot says.

“Unfortunately, because it’s so close to October 1, some businesses may not be able to take advantage of all the possible concessionary treatments because of the time and cost it takes systems to be updated.”

The crucial point with regards to time of supply is that GST is chargeable when the time of supply is triggered, so when this occurs is vital when the rate is changing.

Even though the proposed changes were only released on Tuesday there is already confusion as to what rate of GST applies to some transactions occurring in September.

There will be numerous times when a September transaction will be subject to GST at the 15% rate due to the invoice not being issued and dated until post 1 October 2010.

Some of the changes may have the unintended consequence of leading to increased compliance costs for the recipients of the supplies.

“These changes aren’t all beer and skittles for business. There may be occasions where one side of a transaction won’t be happy with the different rate being correctly applied.

ENDS

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