Government releases new tax 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 range of proposals for reducing the stress, uncertainty and risks for small businesses in meeting their tax obligations.

Mr Swain said New Zealand over 95 per cent of employers had fewer than 20 employees, while 84 per cent had 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."

He said the majority of small businesses paid their taxes, but many were concerned that any mistakes they made could result in paying penalties and interest.

"The proposals being announced today are 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," said Mr Swain.

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. 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.

Mr Swain said other proposals included helping people who received 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." he 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.

Mr Swain said a lot more work needed to be done and called feedback on the proposals from businesses, their tax advisers and other interested parties.

The closing date for submissions is 15 June.