October 1 is the first feasible date for the Government to introduce its the wide-ranging tax changes expected in the May 20 Budget, tax expert Peter Truman says.
Finance Minister Bill English is expected in the Budget to lift GST to 15%, lower the top tax rate and align it with the trust rate of 33%, provide some assistance for people on low incomes to help counter the rise in GST and increase National Superannuation by 2%.
Mr Truman, a Deloitte Dunedin associate tax director, said once the final announcement was made in the Budget, businesses needed "reasonable time" to enable them to adjust systems and processes for tax-rate changes.
Those system changes included updating payroll software to calculate to new tax rates and making further changes to residential withholding tax to eliminate the 38% deduction rate.
A major adjustment was required in the respect of a changing GST rate, because of the need to update accounting systems and also to review changes required to selling prices, he said.
"It wouldn't be feasible to implement tax-rate changes on July 1 from a May 20 Budget announcement, because a six-week timeframe is too short."
The GST rate change would mean businesses having to update accounting systems and pricing, Mr Truman said.
Additional work was needed to separate both income and expenses into the 12.5% and 15% GST categories for the purposes of GST returns to IRD.
There was a need to determine the ability to increase prices to cover the increased GST on longer-term contracts and and the increased value in GST second-hand goods claims due to a higher GST rate.
"Businesses will not necessarily be able to increase current prices due to customer pricing points.
If something sells for $9.95 now, it will be difficult to increase the price to $10.17."
Mr Truman predicted a surge in demand for consumer goods while the rate was still at 12.5% followed by a slowing in demand once the rate increased to 15%.
Although there was no simple equation to work out GST inclusive and exclusive at 15%, Mr Truman did not believe it was a big issue.
Dividing the GST inclusive price by 1.15 would give the GST exclusive price and multiplying the exclusive price by 1.15 would give the inclusive price.
