Listening to the Government congratulating the Australian people on their successful acceptance of the GST, one could be forgiven for believing that the problems concerning its implementation are over. Nothing could be further from the truth.
It is the active role to be played by business in the coming months that will determine the real success of its implementation. Some of the current signs, particularly in the case of small business, are not encouraging.
There are widespread reports of under pricing by business. Although this might be an advantage when considered from the viewpoint of the consumer, it will be of little value if these businesses cannot afford to remit their GST collections at the end of their first period. Some claim that the campaign by the ACCC leading up to the introduction of the GST was too successful.
There is a major concern that many small businesses will not be able to meet their tax liabilities at the end of the September quarter. GST remittances combined with the new PAYG tax installments might see many small businesses in considerable financial difficulty.
Small businesses need to acquaint themselves with the transitional company tax arrangements under the new PAYG system. Companies with tax assessed for the year ended 30th June 2000 of less than $8000 can pay this amount, interest free, over a five year period. Those companies assessed between $8000 and $300,000 can defer 42 per cent of the assessment over the same period whilst those assessed over $300,000 can defer 20 per cent.
They need to ensure they comply with the requirements to obtain this considerable, and in many cases, essential benefit. These requirements are:
1) They have not elected to make PAYG instalments annually;2) They are liable for payments under the company and superannuation instalments system;3) They have not already paid their tax for the 2000 year; and4) They would otherwise be liable for both PAYG and 2000 quarterly tax payments.
Small businesses in particular will need to keep a very close watch on their cashflows in the future. I am surprised that there have not been more courses offered on this now very critical discipline.
Many small businesses, particularly those with quarterly GST remittances, would be best advised to hold their GST collections in a separate bank account designated particularly for that purpose. This way they can be sure the money will be available when it comes time to remit.
The new PAYG system will now bring businesses into line with PAYE taxpayers. That is, income tax will be deducted as the income is generated in the same way as group tax was deducted from pay packets. Unless those businesses accustomed to paying their tax some time after the end of a financial year understand this fundamental shift in philosophy, they could find themselves caught short financially come the end of September.
The GST will also require businesses to change their attitude to the way they maintain their reporting for taxation purposes. Many small businesses had little regard to fiscal taxation until nearing the end of the financial year. However, as a result of the quarterly reporting requirements of both GST and PAYG, they will need to address these throughout the year. They will need to ensure that the total of the quarterly returns agree with their annual taxation return submitted at the end of the year.
This means that many small businesses will need to dramatically improve their internal accounting and reporting systems to ensure compliance and avoidance of penalties. On the one hand, there is an inherent benefit to this in that these businesses will be far better managed financially. On the downside, however, it will add a considerable financial burden to these businesses by way of increased compliance costs.
Those who thought the GST was merely about replacing an unwieldy sales tax with a more simple and efficient alternative were naive in the extreme.
Marnie King is international business development manager at Solomon Software Australia. Reach her at email@example.com