Under Secretary to the Minister of Revenue
Government consults on tax simplification proposals for small businesses
The government has released a discussion document aimed at simplifying the tax system and helping reduce stress on small business.
More Time for Business was released today by Associate Revenue Minister Paul Swain and Under Secretary to the Minister of Revenue John Wright.
It sets out a wide range of proposals for reducing the stress, uncertainty and risks for small businesses in meeting their tax obligations.
"New Zealand is a country of small businesses. Over 95% of employers have fewer than 20 employees, while 84% have fewer than five employees. For this reason, high compliance costs are a serious concern to the government. Reducing these costs for small businesses will help them to increase their productivity and effectiveness.
"The overwhelming majority of small businesses pay their taxes but are concerned that if they make a mistake they will end up paying penalties and interest.
"The proposals being announced today is an attempt to lower their anxiety and make it easier for small to medium sized business to pay their taxes. We want business people to have more time for doing what they do best - running their businesses.
The main proposals relating to small businesses are:
- Provisional tax: Small businesses could pay provisional tax as income is earned, rather than paying it in three equal payments throughout the year. For some businesses this would result in a better match of cash flow and tax payments. Other proposals would reduce interest costs associated with the current system for all businesses.
- Employers and PAYE: Employers could reduce their exposure to penalties and interest by using intermediaries such as payroll firms when collecting and paying PAYE.
- End-of-year tax adjustments: Requirements associated with end-of-year income tax calculations for small businesses, such as trading stock valuations, could be reduced.
- Simplifying requirements: Other forms and processes could also be simplified. They include exemption certificates for non-resident contractors' withholding tax and the resident withholding tax certificates sent out by financial institutions.
- Benefiting from information technology: Recent advances in information technology can help to reduce tax compliance costs by reducing the need for businesses to communicate with Inland Revenue, simplifying the calculation and payment of tax, simplifying the filing of returns, and improving the administration of the tax system.
"Other proposals include helping people who receive family assistance by reducing the number of forms involved, removing complex end-of-year adjustments, and reducing the risk of their owing family support at the end of the year.
"The discussion document builds on earlier tax simplifications that resulted in most salary and wage earners not having to file income tax returns from last year," Paul Swain and John Wright said.
"They include extending the number of individuals who do not have to file a tax return, and reducing risk and compliance costs for those who have small amounts of other income to declare.
"However there is a lot of work to do. Some of the complexity of tax law arises from the changes in the business and economic environment as well as changes to government policies, which has meant frequently updating the law to encompass a more complex set of circumstances.
"Reducing risk and compliance costs for business taxpayers is a challenging process because there is no single solution that will suit all businesses. To make the most of the opportunity presented by More Time for Business, we need feedback on the proposals from businesses, their tax advisers and other interested parties," Paul Swain and John Wright said.
For Paul Swain - Kerry Lamont - 04 4719889/ 021 270 9106/ [email protected]
For John Wright - Charles Ngaki - 04 470 6683 or John Wright 025 403 143