GST Matters

What is Good and Services Tax
Goods and services tax (GST) is a tax on the supply of most goods and services in New Zealand. It also applies to imported goods and certain imported services. It is generally charged and accounted for at a rate of 12.5% on all taxable supplies.

Persons and organisations who have registered with Inland Revenue collect GST from their customers on behalf of the government. They are also responsible for returning GST on certain services they import from a non-resident supplier who is outside New Zealand. The New Zealand Customs Service administers the collection of GST on imported goods.

Your Obligations for GST

Once you are registered for GST these are the things you must do:

  • Keep full records so IRD can easily check your GST liability.
  • Charge GST on all taxable supplies made in your business.
  • Account for GST on taxable supplies made and received.
  • Complete GST returns and pay any tax owing by the due date.
  • Give tax invoices to other registered persons.
  • Tell IRD about any changes, for example, if you no longer meet the criteria for the payments basis.

It is very important that you are aware of what you need to do as a registered person. You could be audited at any time. Failure to meet your obligations may result in penalties being charged.

You must tell IRD in writing within 21 days of any changes in:

  • name (your own name or the name of your business)
  • address (your business premises or postal address)
  • your organisation’s constitution
  • the nature of your taxable activity.

Basic of GST Practice

GST, like any value-added tax, is a tax on consumption. It is not a cost to business except in terms of the expense of compliance. GST is collected at each stage of the chain of production and distribution. Each party accounts for the tax on the value that he has added to the goods.

As a result of crediting a taxpayer with any input tax, the taxpayer’s output tax does not include tax on the tax already paid by the supplier. Therefore there is no cascade effect on prices charged on tax computed at later stages.

A basic principle of the New Zealand GST is that there should be as few exemptions as possible. Those that do exist are justified by unavoidable administrative considerations or on the grounds of fairness.

The most significant exemption is in respect of financial services. Financial services were left out of the scheme of GST simply because of the difficulties of valuation.

The only zero-rated goods are exports. There is a crucial difference in a value-added tax system between zero-rating and exemptions. Where an activity is zero-rated, it remains in the tax system although it is not taxable. The result is that, having paid input tax, an exporter has no output tax. As a result he is continually in credit with the Tax Office. There are major benefits here for exporters over the old wholesale tax system.

Any individual or corporation carrying on a taxable activity must list itself as a registered person unless turnover is below the threshold. The most significant documentation for the administration of GST is the tax invoice. Where goods are imported into New Zealand, GST is charged at entry in much the same manner as customs duty.

The changes in the New Zealand tax system need to be seen in context. They are part of a major overhaul and deregulation of the New Zealand economic system.

The main features of the New Zealand goods and services tax as compared with value-added taxes in other parts of the world are the single rate and the paucity of exemptions. These characteristics affect the objective that GST should be as neutral as possible in effect and as cheap as possible in administration and compliance.