Tax changes announced yesterday were part of a wider business transformation programme that would support the use of new technology, Revenue Minister Michael Woodhouse said.
The transformation programme would use new technology to make it easer to deal with Inland Revenue.
The tax package would cost $187 million over four years.
About 20% to 40% of businesses currently used cloud-based accounting software. That was expected to grow to 85% to 90% in the next 10 years, he said.
‘‘This package allows small businesses to pay provisional tax through their accounting software, rather than having a separate process for their taxes.
‘‘Small businesses are the backbone of the New Zealand economy. We want to help them spend more time focused on their business, not their taxes,'' he said.
Key measures of the proposal are:
●Provisional tax was being reformed, with a new pay-as-you-go option giving up to 111,000 small businesses as they earned income from April 1, 2018. Some of the more complex measures will be implemented from 2018 but most of the changes will start next year.
●Use of money interest will be eliminated or reduced for the vast majority of taxpayers.●Contractors will be able to choose a withholding tax rate suiting their needs, rather than one being set for them.
●The ongoing 1% monthly penalty will be scrapped from April 1, 2017 for new debt - although immediate penalties and interest charges for late payments will continue to apply.
Polson Higgs tax partner Michael Turner said the combined effect of IRD use of money interest and late payment penalties - an aggregate 27% in the first year - could quickly make a tax debt become unmanageable.
The proposal to remove the 1% late payment penalties after the first month would reduce the effect cost of not paying tax on time.
‘‘This is a balancing act, as there must be sufficient incentive to pay tax on the due dates to avoid widespread non-payment. But the cost of not paying on time cannot be prohibitively high so as to mean if a taxpayer misses a payment, they give up.''
