GST Survey Results

GST increase is expected to reduce sales for most small to medium business enterprises

Half firms surveyed plan to increase prices beyond 2.5%

More than 60% of small to medium business owners expect their sales to reduce, once the Government implements its May Budget plan to increase GST from 12.5% to 15%. 

However, almost half also expect to increase their own prices beyond that 2.5% GST rise, with some planning increases of 5% or more, to maintain or improve their profit margin.

Those are the key findings of a nation-wide survey of almost 500 small to medium business enterprises (SMEs) undertaken by accounting software provider, Accomplish Ltd.

“We undertook the survey now before the Budget because we wanted to know how SMEs feel about the GST increase, the problems they anticipate and what help they might need to prepare for the change,” says Grant Hewson, general manager of Accomplish, which serves more than 25,000 SMEs with its user-friendly CashManager accounting software.  

“The survey covered all types of business and industry, and ranged from self employed operators to large, multi-branch companies.

“The results show that many businesses are already thinking about handling the change, which should be easy for some with modern accounting systems like our own CashManager 2010 software. But for those with older or more complicated accounting systems, the change may be a lot harder to implement,” Grant says.  

Asked if they supported the Government’s plan to increase GST to 15%, 56.4 % of respondents were opposed to that change; 14.1% were neutral; and 29.5% supported the change.  Within those numbers, 32.1% were strongly opposed, while 7.3% were strongly supportive.

“Any move to increase taxes is going to be unpopular,” Grant Hewson comments. “But this result probably also reflects the fact that implementing the change is another compliance issue for business owners, costing them extra time and money,  regardless of whether or not they recognize the need for Government to find extra revenue to balance its books.”

Some 19% thought that GST increase would “seriously reduce sales” while 41.2% thought it would have a “minor impact” on sales.   Another 38.4% considered there would not be any real impact, and 1.4% thought the change could help increase sales slightly.

“Most respondents, or just over 60%, believe the extra GST will reduce their sales to some extent,” Grant says.   “And they do have different approaches to coping with that.”

Asked if they would use the GST change as an opportunity to review their overall prices,
16.2% will “definitely increase prices to improve our margin,” while 33% will “probably increase some prices.”     Another 47.3% do not envisage any change in GST exclusive prices; 3.3% may “reduce some prices to maintain sales volume;” and 0.2% may “reduce all prices to beat the competition.” 

While all plan to review their prices, 34.9% envisage an increase of more than the GST increase of 2.5%, and 10.8% plan an increase of more than 5%.    Another 51.7% do not envisage any change beyond the 2.5% GST increase.  And 2.6% envisage dropping their prices by 2.5% or more.          

As for reasons for those responses, 36.6% noted that “business profits have been static and we need to improve our margins to keep pace with inflation and the GST change.” Another 22% noted that “with the recession our business profits have been falling and we need to reverse that trend.”   And 21% also felt that “most customers won’t recognize we’ve increased our prices; any increase will be associated with the GST change.”    

Another 3.4% see the GST change as “an opportunity to increase our sales, even at lesser margins” and 2.3% see “an opportunity to go one better than our competition and really increase our volumes.”

Another 14.7% cited other reasons like:

• “We haven’t increased prices for three years, so it makes sense to look into prices around the same time;  
• “With the exit of the five cent coin, 10 cent items will rise to 20 cents; 
• “We’ve just put up our fees and they were slightly more to allow for any increase that may come in; 
• “We just need to cover costs and have already increased prices; 
• “We cannot increase prices as our competition is companies based overseas. As Government is very inefficient collecting GST on purchases from overseas, a lot of companies put low amounts on invoices from overseas. This affects our business, so we may be forced to drop our prices to remain competitive.  It may make our business unviable;
• “The market is already so competitive we are currently pricing just to keep our employees in work;
• “Competition is fierce in construction and we are already finding ‘cowboys’ undercutting.  They are not registered for GST and do not pay taxes.  A lot involve foreign labour;
• “I’ve raised prices already because all our expenses have gone up;
• “We are a franchise and not permitted to raise prices in our core business. This will cost us lost income and increase our tax bill around 40%;
• “We are in tourism and cannot raise prices for 12 to 18 months as our pricing applies that far ahead and 90% of our clients are from overseas.  So we will lose profit margin in that period.  The Minister of Tourism and Prime Minister should be aware that all tourism operators serving the international market will be in the same boat;
• “We rely on prebookings 12 months ahead. If GST is increased, we will have to absorb those costs until we can implement new pricing.  Also, our income depends on senior citizens who will be most vulnerable to the increased costs, and our business will fall;
• “90% of our customers are GST registered and will be claiming the GST paid as an input, so no real charge to them;
• “Customers will simply have to wear the cost.  We’re a small business and simply cannot wear the cost ourselves;
• “As farmers, we tend to be price takers.  The exchange rate has more influence on our income.”

Summarising these responses, Grant says just over half of businesses will simply pass on the 2.5% GST increase.   However, 45.7% expect to add a bit more in price rises to maintain or improve their profitability, with many having absorbed cost increases without prices hikes in recent times.   And a few firms plan to hold or even reduce prices to boost their sales and better their competitors.

“Once the GST change comes in, it will probably be wise for customers, not just retail consumers, but also businesses, to shop around a bit more than normal, to see where they can get the best price deals,” Grant advises.   

Asked what preparations their business would need to make for the GST change, 21.8% plan to review their accounting system and its capabilities;  5.8% need to review their cash register and EFTPOS capabilities;  17% will review all price tags and price lists;  9.7%  will update point of sale material;  7% will update advertising;  11.9% want to ensure appropriate staff are correctly trained and ready for the change;  3.1% plan a task force approach to plan and implement all needs for the changeover; 10.1% will communicate with staff, suppliers and customers on how the change will be handled; and 11.2% want  to be ready to tackle any teething troubles. 

• “Our biggest issue will be communicating with international wholesalers and agents who sell our product to international tourists. This is huge for us and has potential cost in real dollar terms and image terms;
• “Be totally prepared for a very rough ride as sales plummet;
• “We work in an environment where everything is quoted GST exclusive, so it will be relatively easy for us;
• “Reformat quotes to exclude GST as many are not accepted for up to 365 days after and we try not to increase prices in that time;
• “Present charging policies reviewed to ensure customer perception of value is maintained;
• “Change professional reports to allow for GST increases when reporting construction costs;
• “Reduce opening hours;
• “May mean reducing staff to counter-balance profits – cannot increase prices in current market place;
• “Allow a cost factor in the budget to cover the costs of implementing such a situation;
• “The administrative costs to alter the GST % will affect small business, some of which will not be able to absorb the costs and will have to close.”

“It’s probably fair to say that people with older accounting systems, or very complicated ones,  are rightly concerned about being able to handle the change quickly and efficiently,” Grant Hewson comments.   “Those with modern systems like CashManager know it will be simply a matter of changing the GST rate in one box, and that’s really it.

“There are also some transition issues for companies who may be holding old stock bought at the old GST input rate and which may possibly attract the new GST output rate when sold after the changeover date.   We will need to see what rules the Government makes for handling this sort of situation.”

Asked what the Government or Inland Revenue could do to help make the change as smooth as possible,  58.2% want “good, simple, plain English instructions on preparing for and handling the change, well ahead of the actual change date.”  Another 1.7% want similar instructions in other languages available on demand;  25.7% want a help desk adequately manned so any queries can be answered promptly;  and 11% would like free help with staff training, whether through IRD or other agencies.

Another 3.4% listed other factors like:
• “Tolerance and support;
• “Help desk with someone who speaks proper English clearly and concisely;
• “I was a GST auditor for the last change from 10% to 12.5% so do not anticipate any problems;
• “Our profit margins are continually squeezed. My wife and I work more than 100 hours a week and we are already wondering why…  we seem to be working solely for the Government. We employ around 40 staff.  If GST goes up, we can only see more businesses going to the wall – maybe ours!
• “GST is sometimes more than our overall profit.”

“Leaving aside political correctness, English is obviously the real language of the business world,” Grant comments.  “These responses suggest the Government should put resources into having clear English instructions available to all businesses well before the changeover, along with readily available help over the phone or on-line, as well as help with staff training.  

“Material in other languages will also be needed, but only on demand, so it does not need to be widely disseminated to everyone.”  

As for how much staff time will be involved in planning and implementing the change, 61.1% think it will need less than 20 personhours;   20.1% expect between 10 and 24 hours; 11.3% say between 25 and 49 hours; 4.2% expect between 50 and 99 hours; and 3.3% say more than 100 personhours will be needed.

The cost of that staff time fluctuates widely, with 38.6% of respondents saying it will cost less than $24 an hour; 37.7% put the cost at between $25 and $49 an hour; 15% estimate between $50 and $74 per hour; and 8.7% say it will cost more than $75 an hour.

Comments here included:

• “Altering the price of every item for sale on our website will take more than 50 hours, as we have well over 1000;
• “Changing our construction reports – possibly $5,000 to $10,000;
• “Close the supermarket early to change prices for the whole store overnight. So loss of sales, plus pay staff overtime;
• “Current prices label on product will remain.  New prices will apply as new product comes in.”

“The wide variance in staff time and costs reflects the diversity of respondents, who range from self employed business operators to multi-branch companies employing hundreds of staff,” Grant says.   “For most the GST changeover will probably cost a few hundred dollars, but for some the bill could run into thousands, depending really how efficiently their systems can process the change.”

Grant adds that the results of the survey, which has an error range of plus or minus 0.05%, are being sent to the Government to help officials planning for the GST change.

For more information, please contact:

Grant Hewson, General Manager, Accomplish Ltd
Phone (64) (09) 571 4560
Mobile (64) (029) 260 1933
Email:  This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
Website: www.accomplishglobal.com