It is easy to lose sight of the widespread impact of GST on business. GST is a potential minefield for the unwary and when it goes wrong, it can be expensive. GST is calculated on the gross value of transactions and supplies and consequently the risks in terms of penalty exposures can be very substantial, quite aside from the cost of any GST itself where that liability is not recoverable.
A minimum 20% shortfall penalty in respect of an error or omission will result in a dead weight cost equivalent to 2.5% of the gross transaction value. That cost and the high cost of Use of Money Interest potentially represents a substantial erosion of sales margin or a significant additional cost in relation to a capital transaction. Where identical errors have occurred over a number of years, the very existence of a business can be threatened.
The announcement of the 2010 Budget confirmed the Government’s intention to increase the GST rate from 12.5% to 15%. The new rate will come into effect from 1 October 2010. Click here for further information.
For further information on how Grant Thornton can help you please contact: