GST - Construction Industry, Retail & Distribution

A personal view from a leading industry supplier

By Steve Jewell
Romerils - Director

It won't be long before May 2008 is upon us and we are all paying the 3% GST that is being brought in as part of our Government’s fiscal strategy to plug an approximate £100million budget deficit in 2010.

I must really use this article to encourage JeCC members not to delay any further and to focus time, resources and finances towards being fully prepared.

I should also not miss the opportunity of using another important voice, that of the collective construction industry, in adding support to those of the Chamber of Commerce, The Consumer Council and various politicians, to name just a few that also regard GST as an unnecessary tax, and that perhaps the tax should be delayed.

We have to recognise and accept that Jersey is not a heavily taxed jurisdiction, but with States’ spending escalating at an alarming rate, this is a particularly difficult pill to swallow.

In 2004, Senator Terry Le Sueur said that £400million spent in 2003 was ‘unsustainable’, but for 2008, the budget has been set at £559million, an increase of 7.2% on 2007. It is somewhat difficult to justify such ongoing increases in spending, while increasing taxation. On current spending GST is forecast to raise £45million per annum for the Treasury, but surely, this would not be a necessary part of their fiscal strategy in States spending had been more prudent over recent years?

Barring a miracle, GST is coming and will affect all of us. From a personal point of view, and as a company involved in retail and distribution, it is fair for us to comment factually. Some quarters of our government have suggested that companies will absorb GST, however many business, ours included, do not have the profit margins to be able to implement such a strategy.

Whether or not we adopt a ‘shelf edge’ or ‘at the till’ policy, GST will bring extra cost to every organisation to administer. This too will be factored into our margins to ensure our ongoing viability as a business, as it will be with all commercial enterprises. As well as these additional operating costs, the ‘rounding’ issue will also be an inflationary factor. Many businesses in retail and distribution will have to round prices once GST has been applied, and I am yet to meet anyone that has decided to round down.

How does this affect the construction industry? Steve Lowthorpe, Director of GST Implementation, has said that residential developments will be ‘zero rated’ and that GST will be repaid by the government. This effectively means GST will be passed on at every stage in the supply chain, through various contractors, but the end user, developer will submit all GST invoices/receipts for a refund. The good news, we are led to believe, is that all claims will be settled by the tax office within 14 days of submission.

There's a misunderstanding that a business with a turnover of less than £300k will not be affected. This is not the case, as all goods and services that smaller contractors and businesses purchase, will have 3% applied to their invoices. What it means is that they will not be able to charge and recover the 3% from their customers. However, this again becomes inflationary, as any business will need to offset its increased cost base by raising their prices.