Tax costs drop says Labour

David Cunliffe

An Inland Revenue survey shows tax compliance costs for small businesses have dropped by 41 per cent since 1992, the Government claimed yesterday.

The Colmar Brunton survey, conducted late last year, attracted about 2300 responses from businesses.

It showed tax compliance costs for firms with turnover between $30,000 and $100,000 fell from $5000 a year to an average of $3000 last year.

Medium-sized businesses, with turnovers between $100,000 and $250,000, saved more than 50 per cent with their tax compliance costs falling from an average of $9000 in 1992 to around $4000 in 2004.

A lot of rhetoric and myth was associated with compliance costs, Associate Revenue Minister David Cunliffe said yesterday.

"This research shows clearly the cost of complying with tax obligations has dropped radically."

Cunliffe used a 1992 report on compliance costs by Sanford and Hasseldine for his comparison, and said more moves to reduce compliance costs were on the way.

These include:

* Aligning provisional tax payments with GST due dates to reduce the number of payment dates businesses have to meet;

* Small businesses to pay provisional tax in six smaller payments a year, instead of the current three large payments;

* Provisional tax payments to be based on a percentage of GST turnover, benefiting firms with seasonal income because their tax payments will be more aligned with their income flow.

* Government subsidies for small businesses using payroll agencies

* Fringe benefit tax changes mean work tools such as cellphones and laptop computers will be exempt from tax if they cost less than $5000 and are used mostly for business.

The survey found that the average small to medium-sized business (SME) spends 76.7 hours a year on tax compliance and finds GST the most expensive and stressful tax.

GST required the greatest time commitment (44.2 hours), followed by income tax (29.2 hours), PAYE (27.5) and fringe benefit tax (12.8).

Assessing the internal cost of complying with taxes also found GST was the most expensive, at an average of $1852 a year.

Businesses with no employees had internal costs of about $1500 rising to $2369 for businesses with more than 20 employees.

Those who used external tax advisers paid on average $1465 a year.

The combined internal and external costs of tax compliance was estimated to be $4024 on average a year, ranging from $2932 for businesses with no employees to $7649 a year for businesses with 20 or more employees.

Very small businesses earning less than $20,000 a year found compliance costs ate up 21 per cent of their turnover, but this effect diminished rapidly as the turnover of businesses surveyed increased.

Businesses with turnover between $250,000 and $500,000 found compliance regimes cost them 1.2 per cent of turnover, while those with more than $1.3 million spent 0.2 per cent.

Asked how stressful they found dealing with tax requirements, 51 per cent found it less than moderately stressful, 24 per cent moderately stressful, and just under 23 per cent found it more than moderately stressful.

GST and provisional tax caused more stress than PAYE and fringe benefit tax.