A taxing issue for small businesses

BY ADAM ROBERTS

It's either ignorance, apathy, or a relaxed "she'll be right" way of thinking, but something is behind Nelson businesses' attitude – or in some cases, lack of attitude – towards the coming GST rise.

The increase was first announced as part of a comprehensive overhaul of the tax system with May's 2010 Budget.

Various groups throughout the country were quick to cry foul.

Retailers complained that the timing of the increase would be bad for their businesses, Hone Harawira broke ranks with the Maori Party and complained that it was an attack on the poor, and Age Concern complained that the elderly would suffer.

The three months since the announcement have seen some positive change in the economy.

A Business New Zealand report issued yesterday showed that although attitudes varied, all the main indicators suggested that growth was now "more robust".

The economy was in no danger of a W-shaped double-dip recession, the report said.

Despite the signs of recovery, there is still a long way to go, and it is still a tough time to be a business owner.

The GST increase is just the latest challenge, so how are Nelson businesses placed?

Nelson SBA Accounting practice owner Ruth Fegan said she did not think many small business owners were prepared for the October 1 increase.

"I don't think business people realise what's involved," she said.

The increase had a wider effect than many people realised, she said.

Retailers selling items at critical price points, such as $9.90, would need to decide whether they would absorb the increase or risk losing customers by raising prices over the critical $10 level.

The accounting firm had partnered with Your Company Matters business owner Laura McIntyre to hold a GST seminar for business holders last week.

Ms Fegan said 20 people showed up for the seminar, but those who did went away with valuable knowledge.

"I don't think there was anyone there who didn't learn anything."

Ms McIntyre, who has been advising businesses since 2005, agreed, saying some businesses had a narrow view of how the change would affect their model.

"A lot of businesses think they can just change their rates," she said.

There was a "bit of a head in the sand mentality at the small business level", she said.

There was a general sense that businesses were going to pass on the increase to customers, she said.

She also acknowledged the difficulty in advising business owners when aspects of the legislation are still being finalised.

"Any info is still unconfirmed because there is so much they [the IRD] haven't told us."

Kitt's Shoes owner Glenis Aubrey also attended a seminar to explain the increases, and she said some attendees did not realise what was required of them.

One sector that could be seen as particularly sensitive to the increase is the wine industry, which has had a rough year, still reeling from the recession effects and an excise tax hike.

But Kahurangi Wines managing director Greg Day said cellar door prices would not be affected by the increase.

"We're going to absorb the increase – I'm happy with our margins at the cellar door."

The GST increase was small when compared to the impact of excise tax, he said.

Wine sold on to supermarkets would probably increase in price, but that was up to the supermarkets, he said.

When it comes to cars, the situation is slightly more complicated.

Nelson Bays Motor Group general manager Garry Dayman said new vehicles did not present a problem, and they will simply go up in price according to the increase.

Used cars, however, are more tricky.

When used-car dealers buy cars, they are able to claim back the GST from the IRD.

This will still be true in October, but with cars already purchased, dealers will be losing money on every sale, as they will need to pass on the 15 per cent GST to the Government with every sale.

They could choose to put up their prices to compensate, but Mr Dayman said he did not believe the market would allow it.

"We may not be able to cover the cost in transitional period," he said.

"For any person dealing in used motor vehicles they will bear the brunt of the increase – we will lose on every purchase.

"We could take a loss of $300-500 per car, it will cost us thousands, potentially $30,000-40,000 because we have 100 cars on the lot," he said.

Understandably, his company was encouraging people to make purchases before the rate goes up.

But others in the vehicle trading sector are more relaxed about the change.

Bowater Toyota chief executive Tony Bowater said it was inevitable that the increase will be passed on – it's just a matter of fact.

"I'm very confident we will be able to handle the change – I hope it will be business as usual," he said.

"There might be a little blip but I'm hoping it won't be an issue."

As for the potential problems with second-hand trading, he takes a more practical view.

"It's a mess if you want to make it a mess," he said.

Mint Dining owner Katie Pinker said she would be leaving prices alone, despite the rise.

"While it's an increase, at the time of the year it is and given the financial climate I think people would appreciate them [prices] being left.

"It's one more thing to have to deal with," she said.

A big concern for consumers – and indeed Reserve Bank Governor Allan Bollard – is that retailers would use the change as an excuse to raise prices far beyond what was necessary.

Richards Woodhouse partner Trevor Cameron said the market would not allow retailers to increase prices beyond a reasonable level, "because of the recession, and things like [the failure of] South Canterbury Finance".

Mr Bowater also takes a hard view on those who use the increase as an excuse to jack up prices.

"Unjustified price increases will just mean no-one buys your goods."

Those unsure of their responsibilities should contact their accountant or attend one of the many upcoming seminars over the next month.

- © Fairfax NZ News