What Is GST (Goods and Services Tax)?

What is GST?

GST is an acronym for "Goods and Services Tax", which is a value added tax which is paid on all goods and services that are liable for the tax. There are few exemptions to items that do not incur this tax, these examples include rent on rental properties, financial services, precious metals and charitable donations. GST was first introduced in New Zealand in 1986 during the Fourth Labour Government. The original GST rate was set at 12.5% and stayed at this level until 2010 until it was raised to 15%. The tax is paid to the Inland Revenue Department (of New Zealand) usually on a 1,2 or 6 monthly filing period. For businesses based in New Zealand it is common to fill out a GST Return Form (IRD Form: GST101A).

Businesses that are conducting a taxable activity with a turnover that exceeds $60,000 have to register for GST with the IRD. However, below that amount GST registration is voluntary. 

GST accounts for approximately 18.5% of the income of the Inland Revenue Department and has an approximate per capita of $3119.73 raising $13.74B in the 2011 financial year.

Businesses exporting goods and services from New Zealand are able to "zero-rate" their products meaning that they effectively charge GST at a null rate (0%). This permits the business to claim back the input GST via the GST return as the non New Zealand based consumer does not pay the tax. GST-exempt supplies are not able to claim back input GST

Because businesses claim back their input GST the base price without GST is more important overall as the business will be able to claim the difference back. The increase in GST to 15% however does create issues for cash flow as more money is needed overall to make the same purchases. As a result of this  wholesalers often  show prices exclusive of GST but collect the full amount at the time of purchase.

 

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