Goods and Services Tax

Question: Discuss about theGoods and Services Tax. Answer: Introduction In New Zealand, a VAT type tax was first introduced in the budget of 1984. The legislation of the Goods and Services Tax 1985 got assent and was implemented on 3 December 1985. The section 8-1 of the GSTA 1985 states that GST of 15% is added to the most of goods and services that are supplied in New Zealand by the registered person in ordinary course of their taxable activity. In section 6 of the act, it is that any activity that is carried on continuously and regularly by a person for a payment is known as taxable activities (Kelsey, 2015). The taxable activity do not include working for salary or wages, hobbies, selling private items and making supplies of GST exempted items. The GST charged by the supplier on the goods or services provided is referred to as the output tax. This output tax represents the amount of tax that has been collected on sales and is required with the revenue department. The registered suppliers acquiring the goods or services are eligible for input tax credit on the GST paid as per section 3A of the GSTA 1985 (Thornton, 2013). This input tax represents the amount of tax that has been paid by the supplier for acquiring the goods or services. Therefore, in case of GST registered supplier if the output tax charged exceeds the input tax incurred then in such case the registered person is required to pay the excess to the Inland Revenue department. On the other hand, if the input tax paid is more than the output tax charged then in such cases the tax authority refunds the excess GST paid. The GST is charged on taxable supply and the classifications for the purpose of GST are zero rated supplies, exempted supplies and mixed supply. In case of zero-rated supply, the tax rate for the goods supplied is zero. The zero tax rates are primarily applicable for exported goods and services. The zero rates are also applicable in case of supplies of a going concern. The other classification of GST is exempted supplies and there are two categories of exempted supplies. The first category of exempted supply is financial transactions and the second category for exempted supply is residential accommodation (Claus, 2014). The last classification for GST is mixed supply where there are many supplies that are both taxable and exempted. In this situation tax is charged only to the extent of taxable supply and the input tax credit is allowed only for the portion of taxable supply. In case of mixed supply the input tax claim is required to be apportioned between taxable supply and exempted supply. The apportionment should be made on a basis that is justified and reasonable after considering the expenditure involved. The supplier carrying on taxable activity is required to register for GST as per section 51 of the Goods and services tax act 1986. It is also important to note that if the suppliers are not GST then the supplier is not eligible for input tax credit. If the turnover of the supplier is $60000.00 or more in the last twelve-month or it is expected that turnover will exceed $60000.00 in the next twelve month then in such cases the supplier is required to be registered under GST act (Gupta Sawyer, 2015). If these conditions are fulfilled then the supplier is required to register within 21 days for the GST. If these conditions are not satisfied then the supplier is not required to register for GST. On the other hand, if the turnover does not cross the required limit then the supplier is not required to register for GST but can voluntarily choose to register for GST. In order to register for GST IRD number is required, Business identification code is required, the taxpayer should choose fo r the taxable period and accounting basis. After all this requirements are fulfilled then the supplier can register for GST. The section 52 of the GSTA 1986 deals with the provisions relating to the cancellation of registration (James, 2015). If the suppliers stop the taxable activity and starts another taxable activity then the supplier is required to cancel the registration within 21days. The registration can also be cancelled if the turnover falls below $60000.00. The process of cancellation of registration depends on the number of process of filing return followed by the supplier. If the supplier files return online then the registration can be cancelled by filling a final GST return online. If the GST return is submitted in paper then the registration can be cancelled by sending a letter of cancellation to the department. In order to calculate GST the first step is to calculate sales, income, purchase and expenses. If the payment basis is followed for calculating the sales or income then all the payment received from the customers are added for the purpose of the tax. If the taxpayer follows the hybrid basis then the entire invoice raised during the period is added for calculating the sales or income. Then the GST that has been collected from the sales that is output tax is calculated. The purchase and expenses is also calculated by adding all the payment made during the year if the payment-received method is followed. In case of invoice method, the invoices raised by the suppliers are added to calculate the purchase or expenses. The GST that is paid for this supplies are the input tax. The formula for calculating the GST is relatively simple in New Zealand. The GST calculation is relative to the base and the base is the original figure. In case of adding the GST then the formula is : =Base+ (Base*GST) For example if an item of $100.00 is sold excluding GST then the price of the item including GST is calculated as follows: =100+(100*15%) =$115.00. In case of calculating the GST content of a GST inclusive price the calculation is as follows: = (Base *3)/23 The calculation of GST content for an item $100.00 is calculated as follows = (100*3)/23 =$13.04. The Institute of Chartered Accountants of New Zealand has issued FRS19 Accounting for goods and service tax. In Para 5.1 of the FRS 19 it is stated that an entity is required to account for by stating the expenses and revenue item net of GST. In case of irrecoverable GST input the Para 5.6 states that GST should be part of the expenses or assets (Sawyer, 2014). In Para 5.9 it is stated that the entity should prepare the cash flow either inclusive or exclusive of GST on a basis that is consistent with the statement of financial performance. GST with a single tax rate is the pure form of VAT that has minimum exemptions. The GST was introduced in New Zealand at a time when the economic activity was at its peak and the public accepted taxation reform (Millar, 2013). The consultation process helped the tax to be easily understandable among the public. The Goods and Services tax continues to be very success from its implementation. Reference Claus, I. (2014). GST Compliance in the New Zealand Property Sector.Fiscal Studies,35(2), 225-240. Gupta, R., Sawyer, A. J. (2015, November). The costs of compliance and associated benefits for small and medium enterprises in New Zealand: Some recent findings. InAustralian Tax Forum(Vol. 30). James, C. (2015).New territory: the transformation of New Zealand, 198492. Bridget Williams Books. Kelsey, J. (2015).Reclaiming the future: New Zealand and the global economy. Bridget Williams Books. Kelsey, J. (2015).The New Zealand experiment: A world model for structural adjustment?. Bridget Williams Books. Millar, R. (2013). Smoke and Mirrors: Applying the Full Taxation Model to Government Under the Australian and New Zealand GST Laws.VAT Exemptions: Consequences and Alternatives, Rita de la Feria, ed., Kluwer Law: The Hague. Sawyer, A. J. (2014). GST Reform: Can New Zealand Offer Constructive Guidance to Inform the Australian Debate?. Thornton, A. (2013). Coin rotation task. The development of norms for New Zealand and the United States.