GST expert sounds warning about Labour's tax plan

Tax specialist warns of potential complications in Labour's proposed GST threshold increase plan. Labour leader Chris Hipkins announced changes to benefit small businesses, if elected. Big businesses would pay suppliers within 15 days for invoices over $25,000, while small businesses with turnovers under $10 million would have a higher asset write-off limit.

The GST registration threshold would rise from $60,000 to $80,000, potentially exempting about 35,000 operators from registration. Currently, GST registration is optional for businesses with turnovers under $60,000, but it becomes mandatory once turnover exceeds the limit. The $60,000 threshold has remained unchanged since 2009.

Wellington personal trainer Carl Rein expressed concerns about increased rates due to GST, stating that it would negatively impact his earnings and that he had to manage his workload to stay under the threshold. Deloitte GST expert Alan Bullot argued that an increase would favor businesses generating income through their labor rather than buying and selling goods, although Inland Revenue contends that the threshold originally existed to address compliance costs.

He also noted that New Zealand's threshold of $60,000 is relatively low by international standards, as it would be closer to $130,000 if it had kept pace with wage inflation.

Bullot suggested that an increase in the threshold would result in less GST collected, which Labour plans to compensate for by reducing funding for the Investment Boost policy. Some small businesses might welcome the change, while others might feel disadvantaged, as high-income earners would still be subject to GST under the platform economy rules. Inland Revenue is concerned about the potential for cherry-picking, where businesses may choose to register below the threshold to maximize GST refunds.