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Business groups have welcomed Labour's promise to reduce the interest rate on provisional tax underpayments as a result of the sluggish economy, but say the move will not alleviate any major cashflow crunch.
As part of a wider economic package, Finance Minister Michael Cullen yesterday unveiled a plan to reduce the current 14.2 per cent interest rate on provisional tax underpayment to 6.7 per cent - the rate for overpayments - for the period between January 15, 2009 and May 2010.
Cullen said it was a temporary measure designed to ease businesses' concerns at a time when profits were falling.
Geof Nightingale, tax partner at PriceWaterhouseCoopers, said it was a good move.
"Businesses have complained for a long time about the excessively high interest rate on provisional tax underpayments ... so it's good to see some relief."
But it was not significant.
"If you think about an example where someone had to pay $100,000 of provisional tax - if they paid it a year late at the moment, they would get $14,000 of interest. If they pay it a year late in the transitional period, they'll get $6000 of interest.
"They've saved $8000 but their cashflow is still $106,000 compared to $114,000, so it's not a hugely material change.
"The problem with this is that it's pitched as a measure to help businesses deal with the credit crisis, and some businesses won't be that affected. They'll still have sufficient cashflow to pay their provisional tax.
"Rather than an across the board measure, they might be better off focusing on giving Inland Revenue more discretion to come to payment term arrangements with otherwise successful businesses that are struggling with cashflow because of the access to credit."
Employers and Manufacturers Association (Northern) chief executive Alasdair Thompson said the move would not solve a credit crisis, but would give some businesses a little more breathing room.
"A more honest, straightforward and sensible thing to have done would have been to defer the payment of provisional tax a la [the New Zealand Institute's David] Skilling and [NZX chief executive Mark] Weldon."
