Goods and services taxes (GST) are a global occurrence, but in Australia, the amount of money spent by small businesses on GST is staggeringly higher. According to the Institute of Chartered Accountants Australia, “the cost to small business of meeting its GST compliance obligations is roughly 50% higher in Australia than in comparable overseas jurisdictions” Such statistics draw attention to the significance of such an occurrence. Why is Australia facing drastically higher collection rates for GST and how is this impacting the economy and local businesses? In an economy that is attempting to revive small businesses, a loaded and exorbitant GST rate seems likely to topple any possible progress before it has a chance to bring vitality to the market.
The problem isn’t necessarily just the cost of the tax itself, but collection costs can be insurmountable for many small businesses. Institute Tax Counsel, Paul Stacey estimates that “on average, it costs Australian small businesses $11,950 per year just to collect GST,” not including the cost of GST itself to those businesses. Stacey’s conjecture about possible causes for the disparity in GST costs between nations leaves him to believe that, “Further research is needed to isolate the causes of this apparent higher cost. However, areas to focus on could be our overly prescriptive approach to tax invoices. Also, the initial data in this research may have been distorted because here in Australia, we report other tax liabilities, such as PAYG, with GST on a single BAS form (which is not the case in the other countries surveyed).” If the system needs to be streamlined in order to create a better environment for small businesses, it seems that would become of primary importance until the situation is resolved.
A larger percentage of Australian businesses are required to charge GST as compared to similar counterparts in other countries like South Africa and Canada. With cost of collection cutting into profits for small businesses in addition to a staggeringly high number of businesses impacted, the entire GST proceedings seem to be harming small business revenue. Streamlining the process cannot take place overnight, but it is vital that GST rates and processes are addressed so that circulation of money can be freed up to go back into the market.
Another Use for the Fees
Recent weeks have seen a flurry of conversation dealing with possible uses for the excess GST compliance fees. Some discussions have led to the suggestion that the excess funds should be channeled back into the communities from which they come. The idea is that the money would be well-spent if put into the hands of local government officials for meeting community-specific needs. There is no doubt that this would improve the conditions of many communities, but it does not seem to address the questions or problems brought up in the findings.
Whether or not such an act would directly benefit the companies that are being overdrawn is yet unclear. Mr. Stacey remains convinced that the best use of time is to address the businesses that are being overworked rather than looking at the overhead as extra government funds. “In order to truly address the complexity and long-term sustainability of our tax system, the compliance cost of GST should not be ignored. We welcome these new insights as a means of enabling a more robust, thorough discussion about long-term tax reform in Australia,” Mr. Stacey says.
Numerous opportunities have been cropping up in Australia, meant to function as aides for entrepreneurs and small businesses. Their owners now have the opportunity to virtualize their HQ and function out of virtual offices, such as those provided by Regus (http://www.regus.com.au/products/virtual-offices/index.aspx). Meanwhile, however, GST collections costs have been having a substantial financial impact on businesses. The system requires such specific collections proceedings and has so many guidelines, business owners are, in effect, becoming unpaid government tax collectors. The costs and impact on small business must be relieved. There is no business which is exempt from these costs, whether working from the comfort of home or in small shops, or corporate areas, all business owners run the risk of being directly impacted by this seemingly reckless slew of tax laws.