Goods and Services Tax (GST) is a value added tax introduced in New Zealand on 1 October 1986 at 10%. It later increased to 12.5% on 1 July 1989 and was further increased to 15% on 1 October 2010.
End-users pay this tax on all liable goods and services directly, in that the purchase price of goods and services includes GST.
GST-registered organisations pay GST only on the difference between GST-liable sales and GST-liable supplies (i.e., they pay GST on the difference between what they sell and what they buy: income less expenditure). This is accomplished by reconciling GST received (through sales) and GST paid (through purchases) at regular periods (typically every two months, with some qualifying companies opting for one-month or six-month periods), then either paying the difference to Inland Revenue Department (IRD) if the GST collected on sales is higher or receiving a refund from IRD if the GST paid on purchases is higher.
Unlike in most other countries with value added tax, there are few exemptions: all types of food are taxed at the same rate, for example. Exceptions include rents collected on residential rental properties, donations, precious metals and financial services.
Businesses exporting goods and services from New Zealand are entitled to "zero-rate" their products: effectively, they charge GST at 0%. This permits the business to claim back the input GST, but the eventual, non-New Zealand based consumer does not pay the tax (businesses that produce GST-exempt supplies are not able to claim back input GST).
Because businesses claim back their input GST, the GST inclusive price is usually irrelevant for business purchasing decisions, other than in relation to cash flow issues. Consequently, wholesalers often state prices exclusive of GST, but must collect the full, GST-inclusive price when they make the sale and account to the IRD for the GST so collected.
The headline price must always be GST-inclusive in advertising and stores. The only exceptions are for businesses that claim a mainly wholesale client-base. Otherwise, displaying a prominent GST-exclusive price (smaller than the GST-inclusive price), is illegal.
GST was increased to 15% in the May 2010 budget, effective 1 October 2010. [1]