Small Business and the Goods and Services Tax: Compliance Cost Issues and Estimates

Abstract

The introduction of the Goods and Services Tax (GST) in Australia on 1 July 2000 forms a key part of the Government’s major tax reform policies. Small businesses, around 900,000 firms, play a central role in the GST and Pay-As-YouGo systems, acting as ‘unpaid tax collectors’, and allegedly face an onerous and unfair burden. This paper reviews international compliance cost evidence on small business GST compliance costs, particularly recurrent costs. The major issues currently facing small business and likely to emerge in GST policy debate are discussed. The tentative evidence to date on small business GST start-up costs is reviewed, and the difficulty of assigning economic joint costs, particularly for computer equipment, is recognised. Studies to date suggest small business average GST start-up costs of around $3,000 to $6,000, but with a wide variation experienced. Gross GST start-up compliance costs for small business would be of the order of at least $4 billion, higher than original Government indications. The importance of managerial benefits and savings arising from technology eg on-line lodgment and transfers, is discussed. The paper concludes by identifying possible emerging issues.