The GST (Goods and Services Tax) was implemented on July 1, 2000 in Australia. It affected businesses throughout the country, including most likely your business in New South Wales. Precisely what are the effects of the GST on the operation of your business?
Effects on Consumer Demand
The GST can affect your business in New South Wales by causing fluctuations in demand. Now that the GST has been implemented, this may not be a current issue. However, when the GST was introduced in July of 2000, it had a remarkable and significant effect on demand and consumption of goods and services.
As the day for implementing the GST approached, demand and consumption spiked sharply, especially for goods and services that consumers feared would be much higher with the GST. After the day of implementation passed, demand and consumption fell sharply, actually propelling Australia into its worst economic downturn in ten years.
If there are no changes in the 10 percent tax rate of the GST, there is not likely to be a similar demand roller coaster anytime soon. However, if there is any sort of adjustment in the GST rate, businesses will likely face another period of uncertainty as consumers react to the change.
Effects Through Costs of Compliance
The main way that the GST affects your business in New South Wales is through the costs of compliance. Implementing the GST requires both reporting and technology. Of course, government reporting is faced by businesses worldwide. The main concern for business is when the effort required by government reporting begins to eclipse the core activities of the business. When paperwork and reporting begins to take more time in your business than activities relating to building new business, then you may be headed for trouble.
GST compliance can be expensive to your business in New South Wales in various ways. First of all, certain technology is required to register sales and report to tax authorities. Existing businesses likely have this technology in place, but it represents additional costs for new businesses as well as ongoing maintenance and technical support costs for all businesses.
Depending on the goods and services sold by your business, there may be differential application of the GST; that is, some goods and services are taxed while others are not. Accurately tracking and recording these different transactions can require additional effort. In some cases it may be more effective and efficient to actually hire additional personnel to handle some of these compliance hurdles, but many businesses are reluctant to do so.
Statistics gathered over the last several years of GST administration have indicated that the GST may affect your small business in New South Wales more than larger businesses. In particular, micro-businesses–those with annual turnover of less than $2 million–seem to have a particularly difficult time with GST compliance. Fines for mistakes by micro-businesses were much higher than those for larger businesses.
Effects Through the Integration of New Processes
The GST can affect your business in New South Wales by requiring business practices you might not other need to pursue. For example, you will need to implement business processes that help you to avoid overpayment or underpayment of the GST. Both types of mistakes will result in extra costs for your business. It’s also crucial to monitor cash flow so that you can ensure full funding of your required GST payment when due.
Specific effects of the GST on your business may apply in New South Wales. There has been a great deal of debate about the amount of GST paid from New South Wales to the central government compared to the amount received back by the state. There is a perception (which may be real) that New South Wales is in effect funding other states.
It seems quite clear for now that the GST is here to stay. It will continue to affect your business in New South Wales, but there is little that can be done. You will need to be prepared in advance for hard costs like required technology and soft costs like the loss of productivity due to compliance activities. Planning for efficient compliance with GST regulations should be a standard part of every business strategy.