The Business Herald’s markets and banking reporter.

Tax bill unfair says entrepreneur

R&D credits offered under Labour and scrapped by National were hugely beneficial, says iMonitor director.

Allan Weeks Co-founder of Manukau based company Imonitor. Photo / Chris Gorman
Allan Weeks Co-founder of Manukau based company Imonitor. Photo / Chris Gorman

A $74,000 tax bill has left a technology entrepreneur questioning the Government's strategy around supporting New Zealand start-ups.

Allan Weeks, co-founder and director of Auckland-based wireless monitoring system provider iMonitor, says there's something fundamentally wrong with some large corporations paying only a few thousand dollars in annual tax in this country, while small firms have to pay much larger tax bills.

It recently emerged that Facebook paid just $14,497 tax in New Zealand last year. The social media giant, like other large corporations, funnels its earnings into low tax jurisdictions.

Weeks said he wasn't "bleating" about iMonitor's tax bill, but there were a lot of things the company, whose revenue he would not disclose, could do with an extra $74,000.

That could include appointing a business development manager to boost sales, travelling overseas to promote exports and investing in research and development.

"We have all read pages and pages of encouragement from various ministers over the years about how they desperately need companies like ours to grow and earn export dollars," he said.

"Likewise we have all read about the 101 schemes that have come along over the years to make this all happen. But the reality is, it usually doesn't."

He said iMonitor would get more benefit from receiving a tax break - and having full control of its own destiny - than the Government support programmes currently offered to small tech companies, such as the Technology Transfer Vouchers scheme, which funds businesses to undertake R&D at public research institutes and universities.

Such schemes involved time-consuming application processes requiring many hoops to be jumped through and small companies - the ones that needed the most support - often did not qualify, Weeks said.

He said the R&D tax credits offered to firms under the Labour Government, and scrapped by National after it came to office in 2008, had been hugely beneficial to the company, which employed 10 staff.

Weeks said iMonitor's current R&D spend was 32 per cent of what it had been when the tax credit scheme was in place.

"But [now] a company likes ours gets thumped with a tax bill that has a huge impact on the company and stifles growth."

Economic Development Minister Steven Joyce said National did not want to go back to the "blanket tax break approach" offered under the previous Government because it resulted in firms re-classifying expenditure and relied on businesses being truthful about their R&D spending.

"In our view it is a better to supply [R&D support] with more discretion because you'll get more leverage in terms of business R&D growth," Joyce said.

He said the Government was looking to reduce the red tape involved in applying for business support programmes as it rolled out Callaghan Innovation, a new body that will bring together operations of Industrial Research Limited (IRL), certain parts of the Ministry of Business, Innovation and Employment, staff from New Zealand Trade and Enterprise as well as the Auckland Foodbowl, a food innovation facility.

"Part of the introduction of Callaghan is to make sure that it's streamlined for people - that's one of the first jobs they're picking up as they start at the end of this week," Joyce said.

He said the the Government was reviewing tax policy relating to small firms whose R&D spending was not presently tax deductible and also looking at the possibility of providing repayable loans, rather than grants, to new start-ups.

- NZ Herald

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