I’ve recently been thinking through the forthcoming New Zealand GST changes with our consulting team at Enprise New Zealand.
New Zealand businesses will incur unexpected costs as a result of the 1 October GST increase from 12.5 percent to 15 percent, unless they take steps now to prepare for the transition.
From an IT perspective there is a general perception that the rate change is a simple issue – that businesses will change the GST rate to 15 percent in the setup options of their accounting software and carry on. Unfortunately it is not always that simple.
Many businesses – do not appear to have realised all the implications of the change.
Changing the GST rate in your accounting system is one thing, but it’s the issues around the changeover, such as customisations to documents & reports and the timing of particular transaction types and situations that are going to catch people out.
Examples include the handling of transactions such as lay-bys, credit notes, orders, back-orders and quotations that are processed within timeframes that span the GST changeover date.
Someone will have to pay the increased GST – and it will be up to the business to make up the shortfall if it does not charge the customer the correct amount. Companies dealing in large volumes of goods, or companies that order goods in advance are more vulnerable in this situation.
With only two and a half months to go, the IRD is yet to release final official guidelines for businesses. A GST Advisory Panel has been set up to consider the transitional issues businesses are facing and will provide regular comment on its website. See: www.gstadvisory.govt.nz
The flexibility of modern accounting software packages, and the ease with which businesses can customise them, is sometimes a double-edged sword. GST has not changed for over 20 years. Since then a huge number of customized reports and forms have been created by many people for individual business requirements that may involve GST calculations. Without thorough testing, businesses won’t know for sure whether their invoices and credit notes will apply the correct amount of GST or whether GST will be reported correctly.
Enprise New Zealand has committed to run automated tests on its customers’ systems before 1 October 2010. We have developed a software application that can be run – remotely in most cases – through system files and databases to check all customisations and identify instances of hard-coded GST rates in the customer’s environment. Enprise can then advise and or help customers make their system compliant.
The application we’ve developed is automated, but beyond that, business processes need to be checked for each customer to understand whether they are processing types of transactions that require further GST consideration.
The sheer number of companies that need to have their systems and processes checked is a big issue. Enprise will check at least ten customers a day, every day until 1 October. It’s unusual to have to check so many systems in such a short time frame.
It’s going to be a busy time for the local accounting software industry.
The GST change is not likely to kill anyone – but it could result in cost, inconvenience and bother if not properly prepared for.
Mark Loveys 