Regional discontent with GST complaince SME profile

It was supposed to be easier. It was supposed to help companies get a better grip on their financial affairs. But according to a study by Charles Sturt University, regional SMEs are not impressed by the GST and BAS compliance costs. Fiona Stewart reports.

Regional discontent with GST complaince

It was supposed to be easier. It was supposed to help companies get a better grip on their financial affairs. But according to a study by Charles Sturt University, regional SMEs are not impressed by the GST and BAS compliance costs. Fiona Stewart reports.

Government promises to simplify the taxation system and decrease costs to Australian business have not lived up to the rhetoric – at least for small businesses in regional Australia.

A study by researchers from Charles Sturt University's School of Business has revealed that small businesses in Albury-Wodonga spent more than $14 million in 2000-2001 alone on servicing accounting requirements under the Federal Government's Goods and Services Tax (GST). The team has conducted a series of comprehensive surveys since the second half of 2001 into the reactions of small business to government initiatives such as tax and labour market reform.

The border cities of Albury-Wodonga straddle the Murray River between New South Wales and Victoria. This is one of the largest inland population centres in Australia with more than 90,000 people living within the statistical district, rising to more than 176,000 people living within a 100km radius.

"We felt the area had a good representation of small business diversity which was similar to national centres," Dr Bill Robbins said. "However as the university is well known in the local community, it made it easier to approach potential respondents."

According to Robbins, CSU senior lecturer in industrial relations and management, and leader of the research team, it quickly became evident that the big majority of small business owners were unhappy, even angry, at the demands placed on them by GST.

Respondents were asked about the impact of GST on their business in terms of additional staff costs, additional fees for accounting and other professional services, and additional time owners spent on administration.

The survey found the implementation of GST and the accompanying BAS was perceived by respondents to have cost an average of $4545 extra expense for staff and professional advisers in the first year.

If the results from the 664 respondents were to be generalised across the whole of the database of small business in Albury and Wodonga, the implementation of the GST cost business an additional $14.3 million. That figure did not include any non-recurrent and set-up costs such as the purchase of computers or new software. Such items were specifically excluded from the survey as one-off costs.

The average additional $4545 cost per business also did not include any value for extra time expended by small business operators in implementing the new tax regime. While 78 percent of respondents said they had dedicated a significant amount of extra time towards administering the GST, no attempt was made by researchers to apply a dollar value to that time.

Some 197 businesses – 30 percent of respondents – said they had incurred additional staff costs in completing a BAS and implementing the GST in its first year. Researchers estimated the average additional cost to each of these 197 respondents was $6807.

Additional staff costs were correlated with firm size as measured by turnover. Only 18 percent of respondents with annual turnover of less than $250,000 recorded additional staff costs in the first year of operating under the GST. This is in contrast to the 35 percent of respondents with turnovers between $250,000 and $1 million, and the 41 percent of firms with turnovers exceeding $1 million who recorded extra staff costs.

With regard to additional costs for accountants and other professionals, 460 small business operators, or 69 percent of all respondents, stated that they had incurred on average an additional $3,646 in professional fees in the first year of the operation of the GST.

In addition to cost increases, 78 percent of business operators found the introduction of GST had taken up significant additional amounts of their time. Across the 664 respondents, this amounts to an average of over 133 hours per owner for the year, or 11 hours per month per business spent away from core functions.

"When using turnover as a proxy for firm size it is apparent that the lower the turnover the more likely the owner is to have spent additional time on the GST," said Robbins.

"Approximately 81 percent of businesses with a turnover of less than $250,000 spent additional owner time, in contrast with 71 percent of those businesses with a turnover exceeding $1 million.

"This correlates inversely with the result found with staff costs, indicating that as firm size rises some of the burden of the GST is passed from owner time to staff cost.

"As firm size increased, however, the average amount of extra time spent by respondents also increased significantly," said Robbins.

"The 112 respondents from firms with a turnover exceeding $1 million spent, on average, more than 245 hours overseeing the implementation and administration of the GST and BAS in its first year of operation. This compares with the average extra time of 131 hours for owners of small businesses with turnover less than $250,000 per annum."

Robbins believes this disputes the Government claim the new tax system would bring savings through simplified tax procedures to the small business sector.

"These findings are broadly supported by the findings of the GST Small Business Impact Study undertaken by the Small Business Development Corporation of Western Australia (May 2001) which found that small business were expected to incur estimated extra costs of $3514 each in ongoing GST-related record keeping and reporting costs."

"In its first year of operation the new tax system was costly for small business operators in terms of their staff, professional fees and their time. The Government should acknowledge that, despite claims to the contrary, in its first year the tax system did not provide the promised savings to the majority of small businesses," he maintained.

However the research has shown that 40 percent of respondents to the Albury-Wodonga study agreed that the extra reporting focus of the GST had helped them to better manage their businesses. This compares with 30 percent of the respondents to the WA GST Small Business Impact Study who indicated that "regular collection and reporting of information for the GST gave them a better handle on their business performance" (2001).

With regard to better management of their cash flows, only 12 percent of respondents agreed that the introduction of the GST had made management of their cash flow easier, in contrast with 46 percent of respondents who felt the GST had made cash flow management for their business harder. The WA study (2001) found that almost two-thirds of their respondents felt the new tax system had a negative impact on their business cash flow.

Commenting on the research data, Robbins said there were clearly a negative impact of the GST on the small business sector in Albury and Wodonga with 81 percent of respondent small businesses saying the GST had not aided their firms. This perceived impact runs contrary to the benefits to small business that were predicted by the Government while promoting the new tax system

"The results of this survey of small regional businesses are very clear. There was little evidence of the benefits that the Government claimed would accrue to small business with the introduction of the new tax system. Significantly, a large proportion of small business operators felt that, overall, the introduction of this tax had hindered their business.

"Despite the problems that many small business owners perceived that the GST had created the vast majority of small business operators still support this tax. It is considered that the conservative views of many small business operators may be assumed to have predisposed them to support Coalition taxation policy even though this policy is, by their own admission, costing them both time and money," said Robbins.

"It was also apparent from the results received that clear differences exist within what is loosely termed the small business sector. In general the negative impacts of the GST were felt more keenly by smaller businesses while larger business were more likely to have perceived positive outcomes stemming from the implementation," he added.

According to Robbins, a recent follow-up survey of the 664 respondents to ascertain whether their perceptions of the GST have changed two years after its introduction indicates a strong dislike of the tax system.

"However there is an acceptance that it is here to stay and must be lived with," he said. "And there is firm opposition to any further changes such as the rollback idea put forward by the Labor Party prior to the last election."

Disclaimer

The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.