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GST Increase

With the October 1 date fast approaching, a range of issues and opportunities present themselves in terms of GST rates and pricing.

With the generally accepted view that prices across the board will increase, this time presents a chance for businesses across the country to review pricing and positioning strategies. A consideration must be made to where each function of your businesses costing approaches are positioned in relation to services offered and competitor pricing. While there are a range of warnings in existence over a simple price increase in line with the GST, businesses need to assess how this GST increase will be absorbed.

If your current pricing model is GST exclusive, this may still present an opportunity to revise your pricing policy. As pricing is a dynamic continuum, this approaching GST increase provides an opportunity to reassess your positioning strategy, ensuring that your organisation is offering a value for money service to all clients.

Under the Tax administration Act 1994, and Goods and Services act, 1985, GST is based upon time of supply rules. This means that GST becomes due at either the date of invoice, or date of supply, depending on which is earlier. This same rule applies to the rate applicable for GST. Due to these time of supply rules, administration of this relatively simple matter can become complicated when transactions are occurring over a date range.

The main issue will arise from payments which are invoiced prior to October 1 and paid after this date.

With administrators being required to check each invoice against its date of issue to confirm the appropriate GST rate applicable, it is only a natural expectation that administration errors will arise from this, potentially causing an erosion of operating margins due to overpayment of taxes.

While these overpayments can be recompensed by Inland Revenue, this again has handling and administration costs, and it may be some time before this overpayment is seen and reversed.

Our advice to all businesses across New Zealand is to reconcile all possible accounts prior to the October 1 date, reducing the burden upon yourself and your team, and protecting the bottom line that every business aims to maintain.

At expert, we suggest having your clients made aware of the impact of the GST rise on your pricing structure, giving due notice of any changes in pricing that are brought about.

As such, we wish to give notice that expert will not be making any changes to our GST exclusive rates currently applicable to your organisation. This will, however, mean GST inclusive payments for hosting and lease of MoST as well as chargeable rates for design, development, integration, project management, application development and support are to increase in line with the government defined GST increase, effective from October 1.

This will apply to all invoices issued after 30 September 2010.

Please ensure that all hosting and software lease Automatic Payments are adjusted to fit this.

We would greatly appreciate your settlement of due accounts prior to this date, to reduce administration issues that may be caused.

A basic guide for calculating your new hosting and software lease respective GST component increasing from 12.5% to 15% is as follows:

Divide current payments made by 1.125, then multiply by 1.15

Eg: if your current hosting charge including GST is $225 per month:

Divide by 1.125 = 200

Multiply by 1.15 = $230

When assessing based upon GST exclusive amount, simply multiply by 1.15

Eg: 200 x 1.15 = $230

Using these simple calculations, you can ensure that all transactions are calculated correctly, reducing compliance and administration time, and easing the transition to the new GST rate for all.

If you have any questions about the impacts of this GST increase, please contact expert either by email on us@expert.co.nz, or by phoning (04) 384 9833.

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Phone: +64 4 384 9833 | Email: us@expert.services
Address: 19 Tennyson Street, Te Aro, Wellington 6011, New Zealand
Postal address: PO Box 6474, Wellington 6141, New Zealand

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