Death knells and taxes

Death knells and taxes

Resellers grappling with the slippery realities of the conflicting tax packages on offer in this election have almost run out of time to make up their minds. The seductive simplicity of One Nation's EasyTax, the bristling complexities of the Coalition's GST package and the half-way house that Labor is offering on the road to tax reform are all vying for their votes.

No members of the reseller community are under greater pressure to make the right choice than those scrambling to make a living in the thinly populated spaces between Australia's major metropolitan centres. Dogged by a more punitive cost structure than their big-city cousins, they have less room to manoeuvre if the next tax regime turns out to be ill-conceived.

To tune into their analysis of the tax options on offer, Peter Young talked to resellers outside the metropolitan areas in NSW, Victoria, Queensland and South AustraliaThe conversations turned up some surprises in regions that are supposed to be susceptible to the blandishments of Pauline Hanson's One Nation message. If rural areas are more receptive, PC resellers must be on another wavelength from their neighbours. They showed little willingness to support One Nation's EasyTax.

One Nation proposes a 2 per cent sales tax applied each time ownership of property, goods or services changes hands. Under EasyTax, there are no thresholds, no exemptions and no income tax.

But those country resellers who talked to ARN unanimously dismissed EasyTax as a workable system. A few saluted the concept but none had any confidence in the depth of analysis underpinning the One Nation policy. Typical was the reaction of one Victorian reseller who labelled EasyTax as "not even a policy, just a discussion point".

Radar screens

While Pauline Hanson has generated much of the heat in the lead-up to this election, the real target showing up on reseller radar screens is the GST. Overall reaction showed that they:

Fear the arrival of a GST will force them to rejuggle the balance between hardware, software and services in their business models.

Believe that the paperwork burden generated by today's maze of tax rates will be simplified by a GST.

Generally applaud the Coalition's promise of fuel excise cuts.

Support GST-related moves to scrap a host of business-related minor taxes.

Another item on the tax agenda, the promise by both the Coalition and Labor to abolish provisional tax, drew polite support but clearly ranks as a minor issue with established resellers.

Some resellers distinguished between aspects of the packages they felt would be good for less advantaged Australians and those that would be good for their businesses. Others voiced profound scepticism about the ability of the political parties to deliver tax reforms whose working details even vaguely resemble what is being promised.

"Black package"

With elections looming, some resellers are still trapped in the decision loop, like Jane Gray, manager of the Whyalla Computer Centre in South Australia. She sees the GST as "a real catch-22" in which a basket of benefits is counter-balanced by disadvantages.

"In the retail area it will bring my prices down but in services it will put them up. It means hardware will fall and software will rise," she said.

Others, including Alan Mackay, manager of Computers Dandenong in Victoria, view the Coalition's GST-led offering as "a very black package".

"We are primarily a services business and on balance the impact of the GST will be negative . . . our prices will have to go up dramatically," he said.

With services accounting for 95 per cent of his profits, Mackay does not relish the prospect of having to rebalance his business if the GST gets its nose over the line.

Sitting on the other side of the fence is Shannon Peacock, manager of Peacock Computer Services in Townsville. According to her analysis, "the impact of the GST ultimately will be positive once people get over their initial fright.

"In our industry there is a huge sales tax evasion component, and, if nothing else, the GST will level the playing field," she said. She concedes a GST will force software pricing up but argues it has always been a source of amazement that software has avoided being taxed until now.

"I suspect software resellers will have to look at their margins to stay competitive with the console-type units. But I'd be inclined to suspect the big publishers will say they'll cop a bit if the reseller will cop a bit," she said.

Peacock rejects suggestions that GST-related increases in service charges will lead to a drop-off in demand. "As far as business users are concerned, people can set the hourly service rate they want and business will just fork it out. Computer repairs is an area most general businesses know nothing about. They say they don't care what it costs, just do it."

As far as home users are concerned, "we sell systems with a two-year warranty so the home user rarely has to pay for a service. A free service is a free service."

One awkward development for businesses like hers would be if the GST caused government to step in and tamper with such free services. "For example, the Government might demand we keep time records of what we do and then insist that we charge for those services," she said.

Balancing act

Adam Robertson, manager of Pronet Computer Solutions in Orange, NSW, said he did not expect the addition of a GST to cripple his business in the town of 35,000. "The price of labour will go up but it is not as if I'm being singled out - everybody (competing services suppliers) will be disadvantaged equally.

"Whether customers come to me or go elsewhere, they are still going to want the work done and they'll know how much of their money I'm getting and how much the Government is getting."

He complained about the lack of practical information on the GST being supplied to businesses. For example, Pronet does a lot of ex-tax business with mines, schools and primary producers and he is not yet clear whether their tax exempt status would flow through under a GST structure.

Even so, "my general feeling is a GST would be better for the country although it might be difficult for my business", he said.

Gabriel Szatmary, of Colour City Computers in Orange, was downbeat about the GST's impact on hardware sales. He predicted the Coalition's tax plans "will make half of my customers think twice about buying a computer".

Two out of four Colour City sales go into rural properties, which currently enjoy primary producer exemption from sales taxes. "They know they need a computer to run their business but they are really scratching around to get a living. The decision to buy or not buy is already marginal and another $250 on a $2500 computer system might be the straw that does it.

"To be honest, I think what will happen is the genuine retail sales to the people in town will come down by about 10 per cent," he said.

In Armidale, NSW, deep in the heart of National Party country, Bob Estreich, owner of PC services company Computer Bits, sees a GST as the death knell for older computer systems. "We are able to do budget repairs with second-hand parts, but if you put 10 per cent straight on top of our labour charges, it will blow the costs out and make [486-based PCs] almost untenable. It would almost be cheaper to throw them away," he told ARN.

"GST will push a lot of customers past repairs and straight into a new computer because it will be cheaper," he said. Nor does One Nation's EasyTax get his nod. He categorises it as "a great idea if it worked but I don't think they have the skill in their party to assess it accurately".

By a process of elimination, that leaves Estreich with Labor's GST-free package as the only viable alternative. "I think there is room to make the current system work better."

Cleaner slate

A GST-centric tax reform package did score points with resellers weary of the administrative burdens imposed on them by the current crazy-quilt tax structure. "At the moment, there is a whole range of taxes," said Matthew Dickerson, manager of Axxis Technology in Dubbo, NSW. "We can count up to 40 different tax rates we have to cope with, ranging from 0.4 per cent for software because of its media content, through to 22 per cent for some hardware.

"As examples, HP printers carry a 19.8 per cent sales tax, most brands of modems are at 17.6 per cent but some are 13 per cent. Toshiba notebooks can vary from 19 to 21 per cent depending on the model.

"To my mind, a GST that sweeps all that away is fantastic." Axxis is also an assembler and the amount of work it needs to do each month to calculate tax "is a complete nightmare", Dickerson said.

"Being able to add 10 per cent at the point of sale would be a helluva lot easier. With a GST and its straight 10 per cent at the point of sale, I simply divide my total sales by 11 and I have my GST. What could be simpler than that?

"In my perfect world you'd see a GST of 20 per cent and an income tax rate of zero."

Shannon Peacock agrees: "I use MYOB to do my books and the package doesn't have enough tax rates to cover all the ones I need in this industry." Printers, computers and modems are "all over the shop" when it comes to tax rates, she said.

In addition, her company is classed as a manufacturer that buys some components tax exempt and some on which tax has already been paid. It can also pay 22 per cent on hardware components plus 22 per cent of the difference between the finished manufacturing cost and the final price.

"It all adds up to a nightmare scenario and a GST that cut through all that would make my job a lot easier," Peacock said. The Labor alternative drew little support from Peacock, although she didn't rule out a change of heart.

"Labor's tax policy leaves exactly the same scruffy mess we have now. But I'm a swinging voter and if they told me they were going to fix it in a way that would minimise the number of man hours needed to administer it, they would have me onside."

As to One Nation, "the possibility of anyone putting them into power is enough to petrify me. Pauline Hanson should never have said she was anyone's mother. I thought my mother was bad enough but the thought of being Pauline Hanson's love child is too terrifying to contemplate."

Fuel for thought

For regional resellers, servicing a customer often requires round trips covering hundreds of kilometres while burning fuel that carries the nation's stiffest pump prices.

Under that scenario, it is no wonder that the Coalition promise to chop excise taxes on petrol and diesel fuel commands lively attention in places like Whyalla, a town of about 26,000 some four hours drive north of Adelaide.

"Petrol costs us 82 cents a litre and some of our service calls involve a fair bit of travel - up to 600 or 700km," said Whyalla Computer Centre's Jane Gray. She recoups those costs by ladling them onto the bill she presents her customers where they form a noticeable bulge on the bottom line. So the Coalition's promise to trim excise on diesel from 43c per litre to zero in some instances is a mouth-watering inducement for country resellers.

It would have a threefold impact: first by cutting their own fuel outlays, second by putting more money in the pockets of their rural customers and finally by lowering the transport costs of products shipped by road from metropolitan distribution centres.

"We run two diesel vehicles and most of our company cars do 75,000km a year," says Allan Cunningham, manager of Transient Computers in Albury. He pays about $50 to have a system shipped by road from Sydney or Melbourne. If the transport companies passed on savings from lower fuel costs, it would be a mark in favour of the GST as far as Cunningham is concerned.

He also supports the GST because it promises to "get rid of the shonks who avoid paying tax".

Noxious nine

The Coalition is trumpeting that the GST will allow the scrapping of nine current taxes, from the debits tax to stamp duties and conveyancing duties on business properties. From a reseller's perspective, that group of taxes doesn't have a major impact on business. It is viewed more as a frustrating collection of small negative side effects.

But the concept of scrapping a bundle of hidden taxes in favour of one highly visible taxÊwasÊwidelyÊlauded.Ê"EachÊand every one of these taxes requires time to administer, including extra time at the point of reconciling the statement," said Townsville's Peacock.

On the longer term effects of a GST, she noted New Zealand is still alive and functioning years after implementing its version of a goods and services tax. "But a point that bothers me is who watches the watchers? No matter how good a system is, it still has to be policed. So where are all these value added tax inspectors going to come from?"

There may also be a darker downside to tax simplification, Peacock pointed out. "For tax cheats, it means there is only one person with a clipboard to evade instead of 10." v

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