Retailers beware: the debate about changes to the Australian GST system is gaining momentum. A discussion paper recently released by the Treasury builds a case for an increase to Australia’s rate of goods and services tax, along with other proposed tax system amendments.
The government can expand the goods and services tax in four ways:
• Increase the GST rate to 12.5 or 15%
• Apply GST to all sales, including fresh food, medical services, etc
• Introduce multiple GST rates, e.g. a higher rate of 22.5% for luxury goods
• Lower the threshold for direct imports from its currently excessive level of $1000
Bottom line: most people will pay more tax, possibly with some offsets in the income tax.
However, the title of this article wasn’t meant to reflect concerns about the impact of such tax changes on the individuals, but on the retail industry.
Obviously, consumer sentiment could be impacted. But the bigger problem is likely to emerge at a core business level: many retailers’ IT systems won’t be able to cope with the new GST requirements.
Australia was a late adopter of GST, which only came into force on 1 July 2000. Despite of implementing a relatively simple, single rate form of GST, most IT systems used by retailers at the time weren’t designed to support a VAT-type tax. As a consequence they required reprogramming to support the new tax regime.
Unfortunately, many of the so-called solutions implemented at the time were crude patches rather than coherent solutions. Just an addition of a fixed 10% to the sell price of goods was a common solution, with an option to mark an item as GST exempt.
This may have sufficed back then and is still holding at present, but the same approach won’t work if the rate changes, or if more than a single rate needs to be supported.
The Retail Directions Platform has been purpose built to power retail operations both locally and on a global scale. Even back in 2000, the system supported multiple VAT/GST rates, by item, with dynamic application. A retailer using our system simply sets up a new rate, with an active date: the system will apply it automatically.
Many of our clients have benefited from this functionality over the years e.g. in New Zealand where the rate of GST has increased twice since 2000, and when expanding their operations internationally.
With GST reform looming, finance and IT managers in the Australian retail industry need to ask the question: are we ready to handle the possible changes to GST? If the answer is no, the time to act is now. Before the new GST rules are introduced, quite substantial changes might be needed in the retailer’s core systems.