Wide-ranging tax changes announced yesterday by Prime Minister John Key have been widely applauded by the small business community and their tax advisers.
The changes are aimed at the small and medium-sized enterprise (SME) sector, which employs about 90% of the country's workforce.
Polson Higgs tax partner Michael Turner said the provisional tax changes alone would mean a positive change for 86,000 taxpayers, and voters next year.
More complex proposals would be introduced by 2018, when Inland Revenue's new IT system would be operating.
While in themselves the changes were not radical, they were the most taxpayer-friendly - other than the tax rate - seen for a long time, he said.
‘‘With an implementation date of April 1, 2017, for most proposals, the changes could be in place and being enjoyed by SMEs prior to the 2017 election.''
The document signalled a change in thinking and suggested ‘‘close enough is good enough'' might be sufficient for SMEs, he said.
Deloitte Dunedin tax partner Peter Truman said the current use of money interest rules had been a ‘‘huge bugbear'' for many taxpayers for many years.
The proposed changes would significantly reduce the periods to which interest applied and would be well received.
Also, the total removal of many smaller businesses from the interest regime would eliminate many situations where often a relatively small amount of interest could become payable. It was a sensible compliance cost saving measure.
The removal of the incremental late payment penalties was a well-thought-out change for the better, he said.
‘‘At first blush it might look like the Government is going soft on taxpayers who are not paying their tax on time. But a similar fiscal outcome is likely given the previous approach of charging penalties every month only to have them subsequently written off as part of a debt recovery arrangement.''
The new approach had the benefit that individual debts were less likely to spiral out of control, Mr Truman said.
MYOB general manager SME solutions James Scollay said the proposed changes would remove a key pain point for most SME owners.
The business tax package would make provisional taxation compliance a lot easier for hundreds of thousands of businesses in New Zealand.
‘‘This will be a game-changer for Kiwi businesses. For many years MYOB has conducted research into what policies small business owners would most like to see addressed to help them succeed. In our most recent survey, simplification of provisional tax rules again came out as the policy most important to business owners.''
In the latest MYOB Business Monitor research of more than 1000 local SMEs, conducted for MYOB by Colmar Brunton, 83% of businesses identified ‘‘simplification of provisional tax rules and processes to make it easier for businesses to accurately determine and meet their tax obligations'' as the government policy most important to their operation, he said.
Mr Key said in a speech to BusinessNZ, in Wellington, the package would make paying tax easier and more certain, reduce the burden of interest and penalties and help smaller businesses tailor payments to their own circumstances.
‘‘I think everyone acknowledges that meeting tax obligations is a particular challenge for smaller businesses. Among other things, businesses tell us that provisional tax is hard to get right and expensive to get wrong.''
Perfect accuracy could be costly in a way that did not seem justified. And some penalties were seen as punitive and discouraged compliance, he said.
There were three parts of the package, the first relating to provisional tax.
Among other things, the Government was going to eliminate or reduce use-of-money interest for the vast majority of taxpayers.
Small businesses - those with as turnover of less than $5million - would have the opportunity to choose a new ‘‘pay-as-you-go'' option for provisional tax.
The way provisional tax currently worked was people, by one method or another, estimated their likely tax bill for the coming year and paid the amount in three instalments.
Mr Key said the new option dropped the estimation part and instead worked out tax payments on an ongoing basis throughout the year.
Every two months, the accounting software used by businesses would calculate the taxable income for that period.
Under the new accounting income method, provisional tax payments would more accurately match income as it was earned, be made more regularly and be integrated into normal business practices.
Use of money interest would not apply to taxpayers who chose that method and who paid their tax on time, he said.
At a glance
•Tax changes announced aimed at the SME sector
•Widely applauded by SMEs and their representatives
•Change should be in force before next election
•Most tax-friendly changes seen for long time
