Australians braced for GST

Economy is mainly based upon services
Cost of set up - $10 billion
Not all goods and services are to be subjected to GST

As international focus falls upon Australia's forthcoming Olympic commitments, internally the nation braces itself against the implementation of a new tool that will reform their entire taxation system.

Prime Minister John Howard has always claimed that reforming Australia's taxation methods was: "…the largest piece of unfinished economic business", mainly because the current tax system was created in the 1930s and based on an economy reliant on the sale of goods.

Economy is mainly based upon services

In the 1990s the economy is mainly based upon services, and as such, the sales tax system does not assess a large proportion of economic activity. The government's solution was a series of new measures, the most significant of which being the removal of the current Wholesale Sales Tax (WST) and the introduction of a Goods and Services Tax (GST) from July 1, 2000.

GST is a broad-based tax on most goods and services, included in the price total. The taxation rate of WST ranges between 12 - 45 per cent, whilst GST is to be set initially at 10 per cent. While GST will be added at each sale in the production and distribution chain, business gets input credits or refunds of GST paid on goods and services used in their business. Therefore this levy is passed down the chain to the consumers, who ultimately bear the cost.

The Government claims this system will abolish hidden taxes and cut personal income tax by $12 billion annually. Inflation is expected to rise by 1.9 per cent in the first operational year, although interest rates are predicted to remain static.

There is growing consternation amongst Australia's extremely large contingent of small businesses that taxing services and associated skills will make them more vulnerable to global economic downturns. Every business with a turnover exceeding $50,000 per annum must register for GST, and subsequently then charges this tariff on all sales and services. GST must be then be paid by the business to the government every quarter, calculated as the amount collected minus the amount paid out. Should the result be negative, the government provides a refund.

The enormous effort required by businesses to prepare for July has inevitably resulted in a huge boom for supporting services such as consultants and accountants.

Cost of set up - $10 billion

GST set-up costs for the nation's one million small retailers have been estimated at $10 billion. Continuing compliance amongst the retail industry is predicted at one per cent of sales, which is the annual equivalent of $1.5 billion. The government's GST Start-Up Assistance Office has unveiled a massive scheme to educate charities, community groups and small businesses by conducting more than 400 seminars at a cost of some $7 million. These are aimed at individuals, such as business leaders, deemed able to disseminate advice amongst their peers and help begin demystifying the new regulations.

The Australian Competition and Consumer Commission (ACCC) has been set up in order to monitor the prices of goods and services, ensuring that businesses do not alter them unfairly in order to accrue extra profits. This department is set for a busy season - there is already an impending court-case with rental chain Video Ezy, - the ACCC alleging that it used GST to unfairly raise prices of new releases by $1.

Video Ezy vehemently deny this. The Federal Opposition are to refer the Government's GST advertisements, which promote the new tax system, to the ACCC, claiming they are false and misleading. And just to further confuse matters, retail and business associations have complained at the role and subsequent power given to the ACCC itself by the government in regards to monitoring the use of GST, accusing the organisation of being heavy handed and looking for scapegoats.

Accounting firm Arthur Anderson estimates that $12 billion will be spent on areas such as education and internal project management. Another $12 billion is expected to be paid out for external tax and systems advice. The latest competitor in the GST compliance sector, Computron, has recently accused Australia's leading accounting firms of misleading the market regarding the cost of GST. They claim that their compliance system would reduce the total mooted bill by 80 per cent, a statement that may provide comfort for some but for many only adds to the confusion.

The new tax might not mean all profit for these peripheral industries, however - tax practitioners are feeling the pressure of providing clear and accurate GST advice because of increasing workloads, time constraints and general confusion over the new tax system. Legal firm Baker & McKenzie claims there to be so much uncertainty in the new legislation that any advice should be regularly updated and provided with a caution.

Not all goods and services are to be subjected to GST

Not all goods and services are to be subjected to GST. Items such as medical and other health services, education courses, and religious services will be GST exempt, along with basic foods such as uncooked meat, eggs, bread and such like. Power, gas and telephone bills, however, are set to rise 10 per cent, along with recreational items such as sport and theatre tickets, and restaurant food. Despite these concessions, and the government's exhaustive attempts to promote GST, reaction from most quarters has not been positive.

Shadow Treasurer Simon Crean called the date of GST's confirmation in the Senate "a black day". Anti-GST rallies have been held around the country, there are fears that the arts generally and Aboriginal art specifically will suffer, tenants are preparing for at least a 2.3 per cent increase in rent. Retailers are predicting a pre-July boom in clothing and footwear sales, as these are about to be subjected to the new tax for the first time.

By: Mario Cacciottolo

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