Provisional tax is the mechanism by which most businesses pay tax during the year. The exact amount of tax to pay for an income year can only be determined after the year has ended. The provisional tax rules, however, are designed to ensure that tax is paid during the year, rather than at the end.
For example, the calculation and payment of business income tax could be based more on when income is earned during the year – much like a PAYE for business. This has the potential to simplify the calculation of provisional tax, create more certainty for businesses, and better reflect cashflow. Alternatively, a simplified system where provisional tax payments are based on another proxy (for example, a percentage tailored on a business’s turnover) could also be investigated.
How important is improving the provisional tax rules in reducing compliance costs for business? Are there other more important issues the Government should be focusing on instead, or as well?
The Government seeks feedback on ideas for more effective, practical and simple methods of calculating and paying provisional tax. How could provisional tax be better aligned to other business processes?