The discussion around increasing the Goods and Services Tax (GST) is heating up again following the Council of Australian Governments (COAG) late last year. A study, also released at the end of last year by the Parliamentary Budget Office, looked at several different options which included raising the GST to 15%. Although other tax breaks would likely accompany the proposed increase, full details of the plan haven’t been confirmed.
What Is the Proposed Changed?
The proposal would increase GST from 10% to 15%. A reported benefit by the Parliamentary Budget Office includes increasing revenue by $130 billion in 2017-2018. The report also indicated that lower income earners would be negatively affected by the changes if no specific concessions were put in place.
An increase in overall revenue would also likely provide the opportunity to make tax cuts in other areas such as stamp duty, reduce company tax and still provide concessions to low-income earners who are affected by the change. Some state leaders including NSW Premier, Mike Baird, support the increase, particualrly for the funding assistance it could provide around health and education.
What Are the Implications for Small Business if the GST Rate Does Increase?
The new reforms could affect small businesses in the following ways:
- The cost of running a business would likely increase, for example, phone bills and professional services where GST is charged.
- Businesses would need to decide whether they keep the prices the same or take on the burden of the extra 5%.
- There may be pricing issues depending on whether the business is between contracts, working with clients or selling directly to the public.
- Major deals may have been decided on specific pricing, so it’s important to have transitional provisions in place.
There are also a number of accounting systems changes you should consider looking at to ensure that you and your business can respond quickly when the change occurs, for example:
- Consider payment cycles to see whether they can be altered or changed to make sure you are not negatively affected by the change; and
- Seek advice from a tax accountant to ensure that you are meeting your tax obligations.
Although discussions are currently taking place around increasing the GST from 10% to 15%, Federal and State governments remain undecided how to restructure the raise. It’s also unclear how the proposed concessions to low-income earners may temper some of these concerns.
Another proposal would be to increase the base of the GST rather than just increasing the rate. As with the GST’s first introduction, political discussions and savvy PR helped prepare the public and businesses for the change. We are keeping a close eye on the proposed changes and will keep you updated.
What do you think? Tag us on Twitter @legalvision_au and let us know or ask LegalVision’s taxation lawyers on 1300 544 755 or fill out the form on this page.
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