Notional Goods and Services Tax (GST) refund relief

There are already indications that lowering the GST rate is not on the cards. At any rate, not any time soon. If the developing economic environment warrants another look at a short term tinkering with the GST rate, we have this suggestion.

Cutting the GST rate from the current 7 per cent will entail significant costs as businesses will have to reconfigure their accounting and point-of-sales systems. Also, this takes time to implement and therefore even longer to see the effect filtering through to the economy. Conceptually, we believe there is an 'easier' short term mechanism.

If the input GST claim is notionally 'inflated' by a multiplier (for example 1.2 times or 1.5 times, as the case may be) GST-registered businesses will either receive a larger refund or pay less output tax. Indirectly cash is returned to the GST-registered businesses. This is akin to a 'GST rebate', similar in effect to a corporate tax rebate, but with far greater reach and impact.

This mechanism does not deal with the GST burden at the ultimate consumer level, which remains at 7 per cent. It may, however, significantly ease the cash availability to the businesses and shave off some business costs. And hopefully aid our businesses to cushion off the level of work force downsizing.

This mechanism is conceptually easy to understand. It is not necessarily as easy to implement. Obviously, other policy and implementation considerations will come into play to assess if this is indeed a viable short term economic tool.

Among the difficult issues to consider include questions such as whether there should be a limit or cap on the additional GST refund or reduction in the net GST payable, whether the GST reduction or refund created by the multiplier should be considered as loans to the GST registered businesses, whether it is equitable to lessen only the cost burden and cash flow pressures of GST registered business but not directly addressing the GST burden of the ultimate consumers and the like.

These and other issues are difficult issues to tackle. Nonetheless, this could be yet another item in the Government's arsenal of options for the near future.