Tuesday, October 12, 2010

Time for GST reform



As a small business operator in PNG I would like to make some observations about the unpopular 10% Goods and Services Tax (GST) which some businesses still incorrectly refer to as VAT (old name).

Both businesses and consumers hate the GST because  

(a) The 10% rate is too high and  

(b) The tax is not being collected fairly.

The flat 10% rate makes purchases significantly more expensive and discourages spending.

These often makes people “go without” or buy cheaper quality food and consumer goods which reduces quality of life and can even affect nutrition and health.

Consumers think twice about buying big-ticket items like TVs and fridges and often end up buying cheaper brands that don't last long, and then they are back to square one with nothing but unrepairable goods littering their back yards.

In terms of collecting the tax, it's my understanding that some businesses that are not registered to collect GST are still adding 10% to their invoices.

Customers who are none the wiser just pay up.

This is fraud.

Some other businesses that are registered to collect the tax always add 10% GST to their sales invoices but do not remit all GST takings to the Internal Revenue Commission which is the government's tax collector.

They under-state their income to the IRC and surrender less GST than they have actually collected.

Some businesses are up to five years behind in remitting their GST revenue to the IRC.

This is also fraud but the IRC does not seem to have enough resources to audit all businesses registered for GST and prosecute those who are not playing fairly.

So the culprits just get away with it.

Another problem the IRC should be concerned about is those businesses turning over more than K100, 000 per year that have not registered to collect GST.

The government is missing out on huge amounts of GST revenue from these businesses.

Some privately owned hotels and hire car companies in Port Moresby are notable culprits.

They are deliberately avoiding collecting GST because it gives them a price advantage over their competitors.

The best way to make this unpopular and unfair tax work for the future is to reduce the rate to 5% and then put more IRC resources into auditing and compliance and make everybody cooperate.

If all businesses are collecting and remitting the tax properly at 5% the government will still be financially better off than under the current unaffordable and unpopular 10% rate which many businesses are failing to collect and remit.

Businesses that are not registered for collecting GST will be happier to sign up with IRC if the tax is only 5%.

Businesses not remitting the full amount of GST collected will remit more reliably if the rate is lower.

Crooked busiensses that are not registered but still collecting the tax will get away with less loot.

And consumers will find 5% much less painful and this will stimulate spending which will be good for the economy.

Let's start a campaign for reforming an unpopular 10% GST into a workable 5% GST that everybody will support.



Aaron Hayes
Sec 55 Lot 25 Lokua Avenue, Boroko
(PO Box 531 Gordons)
Port Moresby, Papua New Guinea

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