New Zealand has a "one size fits all" approach to its tax system which negatively impacts on small businesses, according to a major global report.

The Paying Taxes 2013 study looked at the steps taken worldwide to make it easier and cheaper for small and medium-sized businesses to pay taxes in the year to May 2012.

Overall, governments had continued reforming their tax systems despite global economic uncertainty, said the World Bank, International Finance Corporation and PricewaterhouseCoopers (PwC) report.

New Zealand was described in the 165-page report as generally following a "broad based, low rate" approach to tax policy.


"This approach, along with a high standard of tax administration through the Inland Revenue, has led to the present system being well recognised as comprehensive and coherent.

"However, the New Zealand tax system is not without issues and limitations."

Although SMEs made up 97 per cent of kiwi businesses, the income tax system adopted a "one size fits all approach" which failed to distinguish between large multinationals and small businesses.

"This means that SMEs are required to complete the same income tax compliance requirements as larger more complicated businesses."

The New Zealand Institute of Chartered Accountants had released two discussion documents over the past three years suggesting a more simple tax regime for SME's, it said.

The report also said the kiwi government's focus on returning to surplus by 2014/15 had put pressure on Inland Revenue (IRD) to increase tax revenue by generally getting tougher on closing loopholes, enforcing legislation, and pursuing tax debts.

IRD had won a number of "high profile court cases" on the general anti avoidance rule, it said.

"Businesses now face a degree of uncertainty as to when legitimate tax planning becomes tax avoidance.

"Some tax professionals believe the tax avoidance pendulum has swung too far in the Inland Revenue's favour and that this may ultimately require legislative intervention."


Overall, the New Zealand tax system had proved resilient in light of domestic and global economic conditions, the report said.

Reforms announced in the 2010 Budget had contributed to a fall in New Zealand's total tax rate and the time spent by tax payers in making their payments, it said.

In terms of global averages, medium-sized companies paid a Total Tax Rate (the cost of all taxes borne) of 44.7 per cent of profits, made 27.2 payments, and spent 267 hours complying with its tax requirements in the year.

In comparison, New Zealand SMEs paid an average Total Tax Rate of 33.5 per cent, made eight payments, and spent 152 hours meeting tax requirements.

Out of the 185 economies, the most common tax reform in the year was the introduction or improvement of online systems for tax compliance, which occurred in 16 countries.

The number of economies which made reforms dropped from 35 last year to 31 this year.

Paying Taxes 2013 measured all mandatory taxes and contributions that a medium-sized firm must pay in a given year, including profit or corporate income tax, property taxes, dividend tax, and capital gains tax.