GST - The Good, the Bad and the Ugly

Unfortunately have to accept that Jersey's Goods and Services Tax is here to stay for the forseeable future. The GST means that local shops must now charge an extra 3% for their goods and services, and give it to the government. It came into force on the 6th of May 2008.

Earlier this year there was a debate as to whether this tax should be added at the till or added to the price tags, but it was decided to not make it mandatory to add it at the till. This made a lot of people worried that shops were going to start rounding up their prices, particularly on goods that cost less than £1, and keeping the rest as profit. For example, a can of coke which costs 70p, untaxed. 3% of 70p is 2.1p, but many shops may choose to charge 3p. Assuming you went to the shop and bought 1000 cans of coke for a party, you'd be paying £730, which works out to be about 4.2% extra. If it was added at the till, you'd only have been charged 3% extra on the total cost of the purchase. In this case, the total cost including GST would be £721. Obviously this is a fairly extreme example, but this affects people most when buying lots of cheap items, where it can increase the price by a further 1-2% ontop of GST.

The other thing on islanders minds was that we already typically get charged the price inclusive of mainland VAT, but retailers just keep it as profit. If you went down to your local newsagents before GST, you'd probably find you get charged the RRP on the front of magazines, despite that they are written to be inclusive of VAT. Islanders were worried that when GST came in, we'd effectively be paying both VAT and GST. That is, paying approximately 21% above the manufactured price, excluding added costs levied by retailers and resellers.

Now that GST has arrived, we can look back at these considerations and compare them with what happened in real life. Turns out, it was a very mixed bag.

The Good
Some retailers were already charging mostly local prices for their products, and not keeping huge profits from the VAT difference. These retailers added an extra 3% to their prices, and that goes to the government. Many of these retailers are also showing the GST on the reciept. While they are showing adjusted prices on the tags, they are also only charging the 3% GST on the total shopping bill rather than on each individual item.

The Bad
Some retailers were already charging VAT inclusive prices, and keeping it as profit. However, many of these companies, have decided to use this extra profit to absorb the added price of GST. Consumers are still paying more than they arguably should, but at least we're not paying any extra. Many of these companies haven't implemented a system to let them charge GST on the whole bill rather than each individual item.

By and large, companies fall in the first two categories. BBC News Jersey said that 75% of companies have absorbed the cost of GST, and the main retailers such as Co-Op and Checkers appear to fall into the first category. However, there is one final category.

The Ugly
Some shops, most notably corner shops, are effectively charging both VAT and GST on the purchases. The rStore line of shops have notices up around magazines and such saying "3% will GST be charged ontop of the cover price". These retailers are also charging 3% on each individual item, rather than the whole purchase. And there is a final consequence that was largely unpredicted. Many corner shops and petrol stations have used GST as an opportunity to unilaterally increase their prices far higher than the required 3%. Some petrol stations on the island put up their prices by more than 7%. Clearly, they are using GST as an excuse to increase prices, taking advantage of how most people expected prices to go up but weren't entirely sure what an acceptible price increase should have been.

What's Next?
We have no choice but live with it. We must advocate changes to the GST scheme, including zero-rate for basic foodstuffs, school books and children's clothing, and reduced rate for other non-luxuries. At least for the time being, it's very unlikely we will manage to get rid of the tax, but we might be able to make it a little more fair.