All goods and services taxed at one rate

Press, 9 November 1984, Page 2

All goods and services taxed at one rate

Wellington reporter

By April 1, 1986, all sales taxes will have gone. Instead, there will be a new Goods and Services Tax (G.S.T.) at a single rate on the price of all goods and services sold in New Zealand. The tax will be paid to the Inland Revenue Department by the seller of the goods or services, and will be included in the price the customer pays. The rate the G.S.T. will be had not yet been decided. But to provide income tax cuts of about $lOOO million the Government would need to impose a G.S.T. rate of 9 per cent. Most prices will go up as a result. But the Minister of Finance, Mr Douglas, said that a few, such as for goods which had high wholesale tax rates now, might come down. He promised that the Government would act to protect those on low incomes from suffering as a result of the G.S.T. This could be done by changes in the income tax and social welfare systems. There will be no exceptions. Even food will be

covered by the G.S.T. Any exemptions would mean that the G.S.T. on other goods and services had to be increased to compensate. The Government plans to call for public submissions on the G.S.T. early in 1985. It will also begin issuing detailed statements on how the G.S.T. will work early next year, after releasing a White Paper on it. For the G.S.T. to work, every seller of goods and services will have to have registered with the Inland Revenue Department, starting in September, 1985. Mr Douglas added the proviso that the G.S.T. would be applied to “the widest practical range” of goods and services. “G.S.T. is a form of turnover or sales tax,” he said. Like the wholesale sales tax introduced in 1933, and the domestic air travel tax introduced in 1980, it was a tax on consumer spending in the New Zealand economy. Unlike sales tax, which was collected at one stage in the distribution chain when a commodity was sold, G.S.T. was collected in instalments at each trans-

action in the distribution and production chain. A liability to charge G.S.T. would arise every time a taxable transaction was carried out by a trader, be said. The tax liability arose only over “outputs” (sales of goods and services) by a taxable trader; tax paid on “inputs” (purchases of sales and goods) might be claimed as a credit or a refund by a trader against the tax on the "output." Mr Douglas said no tax would be charged on exports and the tax mechanism would automatically rebate tax entering into the cost of export production. A tax of this type amounted to a tax on consumption expenditure. The size of the resultant tax base, after deductions for input tax paid in ' investment, was estimated to be about $19,300 , million in 1982-83 terms, or $26,000 million in 1986-87 terms. He had assumed that the G.S.T. would be imposed in addition to indirect taxes on alcoholic beverages, tobacco products, motor spirits, and possibly motor-vehicles. too, with appropriate rate adjustments.