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The confusion this week over how GST is charged by utility companies illustrates some of the complexities consequent of the rate change, Deloitte Dunedin tax partner Peter Truman says.
The general rule was that invoices dated after October 1 2010 had to have GST charged at 15% regardless of when the goods or services were supplied.
"Utility companies that have charged GST at 15% on invoices dated from October 1 have treated the transaction correctly for GST purposes and have not overcharged their customers."
A transitional provision was introduced that allowed, but only in certain circumstances, invoices to be backdated to September 30 and for the 12.5% rate to apply provided those invoices were issued by Monday, October 11, Mr Truman said.
This transitional provision was introduced primarily for small businesses.
It allowed a business which issued invoices only once a month extra time to do the September billing round at the 12.5% GST rate, provided the invoices were dated September 30 and it was normal practice for the business to backdate its invoices in this manner, he said.
"Unlike a small business, a utility company will generally not issue all its invoices on a single day.
Instead it will have up to 20 billing cycles in a month and be issuing bills to customers throughout the month."
An example could be a power company with one customer's billing cycle running from the first day of the month to the end of the month, while another customer's billing cycle might run from the fifth of the month to the fourth of the following month, Mr Truman said.
It was not normal practice for utilities to backdate their invoices but instead, to date them with the date on which they were produced.
It would cost a large organisation, such as a utility company with tens or hundreds of thousands of customers, a significant amount to try manually changing its billing system for a single event, he said.
In many cases, it would also be physically impossible to obtain accurate meter readings for all customers up to September 30, rather than as part of their normal billing cycle.
"These costs would inevitably either have to be absorbed or passed on to consumers, and most likely would be higher than the extra GST collected otherwise," Mr Truman said.
"While it is understandable consumers may feel hard done by that their power, which was consumed in September and billed for in October, is charged at the 15% GST rate, rather than at 12.5%, this is just an inevitable one-off consequence of the rate change."
Utility companies would not profit by charging the higher rate of GST, as the GST collected was passed on to the Government.