GST Rise May Lead to Disproportionate Costing

June 28, 2010 New Zealand FinanceNew Zealand Taxation

24-02-2005New Zealand’s upcoming GST rate increase could result in the prices of items rising by more than the prescribed amount, with retailers potentially using the time to charge extra.

Over the weekend several researchers and retailers in New Zealand claimed that the upcoming GST rate increase would be used by some sellers to increase their prices above the prescribed rate. According to John Albertson, Chief Executive of the Retail Association, claimed that some retailers might attempt to round-up their prices after the increase, capitalizing on any confusion shoppers might have. As an example he pointed to an item which would ordinarily be priced at NZD 9.99, after the October 1st increase the price should be NZD 10.21. He claimed that it is conceivable that this will be rounded to NZD 10.90, as not all customers will be aware of the appropriate level.

John Albertson said that most low profit margin items will be charged at the appropriate rate, as customers typically are well aware of their proper price. However, items with inconsistent inter-store pricing could easily have an extra NZD 1 charge. However, he added that products that are more expensive and grouped by price-bands might not even increase with the GST rate.

Andrew Parsons, Associate Professor of Retailing at Auckland University of Technology, added that the payment method will affect the way the price change will handled. He explained that vending machines and small-price items are likely to see upward costs due to New Zealand’s lack of a 5 cent coin. Although, he admitted that most retailers are currently seeking pricing guidance from their distributors before making a decision.

Photo by thornj