Compliance Costs: The Impact of the Increased GST Rate on Two New Zealand Businesses

Heather Buchan, Manukau Institute of Technology
Karin Olesen, Auckland University of Technology
Anélle Black, Manukau Institute of Technology
Ranjani Kumar, Manukau Institute of Technology

Abstract: GST is an indirect tax on the consumption of most goods and services within New Zealand. It is a significant source of Government revenue. With effect from 1 October 2010, the GST rate changed from 12.5% to 15%. The purpose of this paper is to report on the impact of this increase on two New Zealand businesses. A qualitative case study using semi-structured interviews, discussions and direct observation was undertaken involving the finance departments, customer service representatives, and end users of the two organisations. The study found that the increased GST rate impacted on the compliance costs of the businesses, especially in the areas of software development and testing, technical tax research, high-level transaction-class tax-audits, employee training and communication with customers regarding the impact of the rate change on their business relationship and transactions. Although the prior literature discusses these issues and the steps that have been taken to try to alleviate them, little work has been done on comparing GST compliance costs between large and small businesses. In this article, we address this gap in the literature. This paper also analyses the implication of the introduction and implementation of this Government policy.