Goods and Services Tax (New Zealand)
Encyclopedia
Goods and Services Tax (GST) is a value added tax
introduced in New Zealand
on 1 October 1986 at 10%. It later increased to 12.5% on 1 July 1989 and was further increased to 15% on 1 October 2010.
End-users pay this tax on all liable goods and services directly, in that the purchase price of goods and services includes GST.
GST-registered organisations only pay GST on the difference between GST-liable sales and GST-liable supplies (i.e., they pay GST on the difference between what they sell and what they buy: income less expenditure). This is accomplished by reconciling GST received (through sales) and GST paid (through purchases) at regular periods (typically every 2 months, with some qualifying companies opting for 1 month or 6 month periods), then either paying the difference to Inland Revenue Department
(IRD) if the GST collected on sales is higher, or receiving a refund from IRD if the GST paid on purchases is higher.
Unlike most similar taxation regimes, there are few exemptions - all types of food are taxed at the same rate, for example. Exceptions include rents collected on residential rental properties, donations, precious metals and financial services.
Businesses exporting goods and services from New Zealand are entitled to "zero-rate" their products - effectively, they charge GST at zero percent. This permits the business to claim back the input GST but the eventual, non-New Zealand based consumer does not pay the tax (businesses that produce GST-exempt supplies are not able to claim back input GST.)
Because businesses claim back their input GST, the GST inclusive price is usually irrelevant for business purchasing decisions, other than in relation to cash flow
issues. Consequently, wholesalers often state prices exclusive of GST, but must collect the full, GST-inclusive price when they make the sale and account to the IRD for the GST so collected.
The headline price must always be GST-inclusive in advertising and stores. The only exceptions are for businesses which claim a mainly wholesale client-base. Otherwise, displaying a prominent GST-exclusive price (i.e. smaller than the GST-inclusive price), is illegal.
GST was increased to 15% in the May 2010 budget, effective 1 October 2010.
Value added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
introduced in New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
on 1 October 1986 at 10%. It later increased to 12.5% on 1 July 1989 and was further increased to 15% on 1 October 2010.
End-users pay this tax on all liable goods and services directly, in that the purchase price of goods and services includes GST.
GST-registered organisations only pay GST on the difference between GST-liable sales and GST-liable supplies (i.e., they pay GST on the difference between what they sell and what they buy: income less expenditure). This is accomplished by reconciling GST received (through sales) and GST paid (through purchases) at regular periods (typically every 2 months, with some qualifying companies opting for 1 month or 6 month periods), then either paying the difference to Inland Revenue Department
Inland Revenue Department (New Zealand)
Inland Revenue , previously known as the Inland Revenue Department, is the New Zealand government department responsible for the collection of over 80% of the Crown's revenue in New Zealand. It also collects and disburses social support programme payments and provides the government with policy...
(IRD) if the GST collected on sales is higher, or receiving a refund from IRD if the GST paid on purchases is higher.
Unlike most similar taxation regimes, there are few exemptions - all types of food are taxed at the same rate, for example. Exceptions include rents collected on residential rental properties, donations, precious metals and financial services.
Businesses exporting goods and services from New Zealand are entitled to "zero-rate" their products - effectively, they charge GST at zero percent. This permits the business to claim back the input GST but the eventual, non-New Zealand based consumer does not pay the tax (businesses that produce GST-exempt supplies are not able to claim back input GST.)
Because businesses claim back their input GST, the GST inclusive price is usually irrelevant for business purchasing decisions, other than in relation to cash flow
Cash flow
Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...
issues. Consequently, wholesalers often state prices exclusive of GST, but must collect the full, GST-inclusive price when they make the sale and account to the IRD for the GST so collected.
The headline price must always be GST-inclusive in advertising and stores. The only exceptions are for businesses which claim a mainly wholesale client-base. Otherwise, displaying a prominent GST-exclusive price (i.e. smaller than the GST-inclusive price), is illegal.
GST was increased to 15% in the May 2010 budget, effective 1 October 2010.