Compliance costs may cripple

SMALL businesses are likely to be hit with GST compliance costs forty times those of big businesses.

Thokmac Research principal Peter McDonald arrived at this finding using compliance cost comparisons generated by Cedric Sandford and John Hasseldine in their 1991 study of compliance costs from New Zealand’s GST.

He believes his estimate is conservative, despite differences between New Zealand’s and Australia’s GST.

“The New Zealand GST is actually a much cleaner system than that proposed for Australia. The complexity of the system will add to compliance costs,” Mr McDonald said.

A Federal Government impact statement suggests the average compliance cost for businesses will be just $210.

However, Mr McDonald said this was simply the much lower compliance costs of big business dragging down the average.

Automation is likely to help reduce GST compliance costs. However, economies of scale are expected to make this cheaper for big businesses than small businesses.

University of New South Wales Faculty of Law lecturer Michael Walpole said economies of scale were always going to affect small business.

“The best small business can hope for is to address the degree of regressivity they face,” Mr Walpole said.

Durham University Business School director of business development Bill Snaith said the introduction of the VAT system in the UK forced many small businesses to close.

“The compliance costs of the VAT to small businesses in the UK turned out to be a lot more than expected,” Mr Snaith said.

Curtin Business School’s Small Business Unit executive director Tim Mazzarol said the UK lesson showed small businesses had to have tight financial control.

“The introduction of a GST is going to require a major change of thinking by business operators and accountants, who are generally not currently concerned with handling ongoing cashflow management,” Dr Mazzarol said.

“About 95 per cent of Australia’s enterprises are small businesses and 68 per cent of these are microbusinesses operating on a shoestring.”

Combined Small Business Organ-isations of Australia chief executive Rob Bastian said the precise level of disadvantage small businesses would face would be hard to quantify until the Ralph taxation review’s findings were released.

“Even so, small business is still concerned about the increased paper work,” Mr Bastian said.

“The first area of costs is in the transitional costs.

“After that, you can divide the costs into administrational costs and employment costs.”

Mr Bastian said $4.5 billion of effort was already required to collect employment costs such as PAYE tax, superannuation and child support payments.

He said the government would soon put the onus of collecting family allowance payments onto employers.

Despite the costs facing small business, Mr Bastian remains optimistic.

“We have a year of fine tuning before the GST comes in,” he said.

“And I am naive enough to believe that no government wants to damage small business.”

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