1	Goods and Services Tax Business implication – lessons from the region
2	Overview International introduction: myths and realities Lessons from Australia: the good, the bad, and the ugly Business issues - transitional and timing Implementation issues and what business needs to do
3	International introduction: myths & realities Overview Economic Impact Canada Japan New Zealand Singapore Australia
4	Overview
5	International introduction: myths & realities Economic impact Common myths GST undermines economic growth and causes recession/depression GST causes inflation outbreak GST damages consumption expenditure GST results in increased bankruptcies GST induces poverty
6	Economic impact – Japan GDP Growth
7	Economic impact – New Zealand GDP Growth
8	Economic impact – Canada GDP Growth
9	Economic impact – Singapore GDP Growth
10	Economic impact – Australia GDP Growth
11	International introduction: myths & realities Economic impact Economic growth realities The international experience indicates that a temporary slowdown in GDP growth occurred in each country, following the introduction of major tax reform packages Quarterly decline most pronounced in New Zealand and Canada, although these countries were experiencing economic weakness prior to the implementation of tax reform In Australia, Japan & Singapore, GDP growth rebounded quickly & strongly
12	Economic impact – Japan CPI
13	Economic impact – New Zealand CPI
14	Economic impact – Canada CPI
15	Economic impact – Singapore CPI
16	Economic impact – Australia CPI
17	International introduction: myths & realities Economic impact Inflation realities Distinct once-off increase in CPI is observable in countries under consideration — most obviously in New Zealand and barely discernible in the case of Singapore In each of these countries, the CPI trend rate didn’t accelerate following implementation
18	Economic impact – Japan Private Consumption Expenditure
19	Economic impact – New Zealand Private Consumption Expenditure
20	Economic impact – Canada Private Consumption Expenditure
21	Economic impact – Singapore Private Consumption Expenditure
22	Economic impact – Australia Private Consumption Expenditure
23	International introduction: myths & realities Economic impact Consumption realities Private (household) consumption expenditure, with exception of Canada (most likely reflecting economic climate), there was a significant bring forward of consumption expenditure prior to implementation Significant unwinding immediately following implementation Residential construction, motor vehicles, retail trade all had larger impacts
24	International introduction: myths & realities Economic impact In Summary, short-term macroeconomic impacts GST introduction shows significant variation Largely attributed to different stages of economic cycle when GST was introduced Japan was at the height of a ‘bubble’, while Canada was in recession Economic conditions were buoyant in Australia & Singapore while economic activity in New Zealand was weak & uneven
25	Lessons from Australia: Why Australia? Australia is important because it was the most recent developed country to implement GST/VAT Lessons learned from previous implementations Also the only developed country to introduce the tax in an electronic business and government environment Need to consider from the design outset
26	Lessons from Australia: the good, the bad, & the ugly The good Smooth introduction weekend Stable growing revenue base Linked to other tax liabilities, e.g. ABN Greater account of the electronic environment Used electronic returns and payments from outset for larger businesses Education and business introduction support Single 10% rate and broadish base Ability for non-residents to register
27	Lessons from Australia: the good, the bad, & the ugly The bad Strict legalistic interpretation approach makes compliance unnecessarily onerous and difficult Law became complex, with many special rules Very narrow exemptions creates problems Administration makes more restrictive Harsh pricing regulations during introduction Misjudged a couple of impacts New residential housing Petrol prices Tried to do too much reform at once
28	Lessons from Australia: the good, the bad, & the ugly The ugly Business Activity Statement (BAS) Compliance nightmare! Changed interpretations by revenue authority At introduction more flexible, now revisiting and seeking extra tax (with penalties)
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31	Business issues - transitional & timing Time table for implementation New Zealand Budget announcement - July 1984 Government White Paper - April 1985 Consultation - April to August 1985 Legislation introduced - August 1985 Passed - October 1985 Commencement – 1 October 1986
32	Time table for implementation Singapore Consideration announced - 1991 Government White Paper – Feb 1993 Legislation introduced – Feb/April 1993 Consultation – April to May 1993 Passed – October 1993 Commencement – 1 April 1994
33	Time table for implementation Australia Consideration announced – 1997 Government releases White paper – August 1998 Legislation introduced – December 1998 Revised legislation passed – June 1999 Initial registration commences – November 1999 Initial registration complete – May 2000 Commencement – 1 July 2000
34	Business issues - transitional & timing Transition project phases Awareness Establishment of steering committee Business models Current tax impact Tax reform impact Research Implementation Review
35	Long term contracts Before announcing the transition rules fixed price - zero rate until end of contract variable price - zero rate until varied does not apply to exempt supplies After announcing rules tax or exempt according to when delivered can require pro rating
36	Long term contracts - examples Sale of building - fixed price if made before announcement of rules: zero rate if made after announcement of rules: fully taxed Construction/service contracts - fixed if made before announcement of rules: zero rate if made after announcement of rules: fully taxed for value of work done after GST commencement Wealth management - fixed according to % prior to announcement if exempt: exempt if taxable: zero-rated
37	Implementation issues
38	"Project Management is extremely important" Project Management is extremely important time is of the essence multitude of issues, many common, many solutions may contradict Ownership & Commitment essential from top Executives to public contact Huge all embracing change to people & processes Time is crucial - wish I had started yesterday! Data collection for tax and systems evaluation & decision making can be very difficult
39	Implementation issues Understanding tax impact & managing demand & supply demand for products will change during transition and possibly permanently understanding tax impact & anticipating consequences, e.g. major maintenance, substitute goods or services challenge to respond sooner rather than later may all be in the context of changing terms, prices, systems and possibly processes
40	Implementation issues Reviewing business strategy & financial impact changing asset values & accounts impact shifts in business profitability & advantage HR educating & training for new environment, e.g. price inclusive of tax, tax invoice requirements, answering customer queries Communications staff awareness, what is GST? How does it affect me? Corporate messages to customers and suppliers
41	Implementation issues Systems and IT monthly electronic reporting & payment time of supply, invoice or payment (or delivery during transition) cashflow impact, I.e.remit tax before paid generating tax invoices GST register group or not, what are the implications? Timeliness when will you be ready to address these issues, and what is the ‘holding’ stance, e.g. no price change, no contracted sales past implementation
42	Implementation issues - Checklist
43	KPMG ‘generic’ approach
44	Australian timing example
45	Business issues - transitional & timing What actions for today? Review all contracts and arrangements likely to extend past implementation date Review business plans extending beyond GST implementation date Evaluate GST impact on major acquisition/disposal contracts - eg due diligence of acquisitions, lease / buy decisions Consider IT software flexibility
46	kpmg
47	Appendices Overview of select countries GST introduction circumstances
48	Canada Major tax changes phased in from 1988-1991 Broadening tax base and lowering tax rates, designed to shift part of the tax burden from personal taxation to corporate taxation. Personal and corporate tax changes became effective in 1988 A broad-based GST was introduced on January 1991 at a rate of 7% State sales taxes remained alongside GST The Canadian economy was in recession at the time the GST was introduced
49	Japan A comprehensive taxation reform package introduced in April 1989 Broadening tax base and lowering the rates of personal income tax (national and local) and corporate tax 3% general consumption tax was introduced, replacing existing selective excise taxes
50	Japan Package resulted in a net cost to revenue GST was increased to 5% in April 1997 At the time of the introduction, Japan was growing strongly at an annual rate of around 5 per cent led by strong consumption growth and falling unemployment & growth was at the height of what turned out to be an asset-price ‘bubble’, which subsequently burst, with severe effects for the Japanese economy
51	New Zealand A taxation reform package was introduced in New Zealand in October 1986 10% GST replaced most indirect taxes Selective taxes were retained for fuel, alcoholic beverages, tobacco products and gaming, on top of which GST was levied - rates on these taxes were adjusted downwards to take account of GST
52	New Zealand Personal income tax was reduced including a lowering and extension of the first tax band and substantial lowering of the top marginal rate Compensation was provided through the benefit system - all basic benefits increased 5 per cent. There were also changes to family support provisions designed to lower effective marginal tax rates. The rate of GST was increased to 12.5% in July 1989
53	New Zealand GST introduced during weak and uneven economic growth, above 10% inflation & tightening monetary policy There were also significant reforms that preceded the introduction of the GST such as the abolition of wage and price controls in 1984 and the floating of the (NZ) dollar in 1985
54	Singapore GST introduced in April 1994 at 3% Part of Government’s efforts to broaden tax base and reduce reliance on direct taxes GST applied across-the-board on all goods and services with very few exceptions
55	Singapore At introduction, Government committed to not raising the rate as long as it did not need more revenue Additional measures to assist adjust including corporate & personal income tax cuts, an increase in personal relief & tax rebate owner-occupied residential properties + others
56	Singapore Following additional corporate and personal income tax cuts in 2002, the GST rate was increased to 4% January 2003 and 5% January 2004 GST was introduced when economy was buoyant The 2003 rate increase occurred just as Singapore was emerging from sharp economic contraction
57	Australia GST introduced in July 2000 at 10% Part of wider tax reform changes to broaden tax base – abolish some indirect taxes, and reduce personal & corporate income taxes GST across-the-board on most goods and services with some exceptions Government committed to not raising the rate
58	Australia Additional measures to assist adjust including a corporate & personal income tax cuts, welfare & family assistance arrangements + others Extensive transitional arrangements GST was introduced when economy was buoyant
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