KEY POINTS:
New Zealand business is calling for a raft of tax changes to alleviate its cash flow problems as it awaits release of Inland Revenue's briefing to Revenue Minister Peter Dunne this week.
Dunne will use the briefing to develop a work programme covering matters for immediate attention -
which are tipped to include a loosening of
collection rules.
If the government doesn't relax tax laws in light of the credit crunch,
companies will be driven into liquidation, says Mark Shaw, tax partner at Deloitte.
While the ideal would be "an overall systemic fix" to relieve pressure on businesses, KPMG tax partner Paul Dunne says the answer lies in a range of targeted measures.
One is that businesses be allowed to claim deductions for bad debts before they are written off at year end.
Another - to reduce tax burdens on employers - is fixing the policy stopping employers getting a deduction for employee holiday pay accruals unless the employee is paid this within 63 days after the end of the income year.
The cut in the KiwiSaver contribution rate will also help, says Mathew Hanley, tax partner at Ernst Young.
Companies currently pay provisional tax on their last year's profit - plus an assumed 5 per cent annual increase - which Shaw says should be scrapped or replaced, with an assumption of a 10 per cent decrease.
"Given the current economic climate, one would expect profits will
decrease sharply.
Estimating tax payable in the present environment would be very difficult, as no one really knows what is going to happen."
He backs lifting the threshold at which taxpayers need to pay provisional tax and suspending application of use of money interest
charges for businesses basing their tax payments on the last year's profits. If they underpay, they would just settle the amount owing
before the terminal tax date.
Dropping the GST rate as has been done in the UK would provide stimulus,
Shaw says, even if only for a set period; and more businesses should be
allowed to pay GST when they get the cash from their customers instead of on an accruals basis.
But Chamber of Commerce chief executive Michael Barnett says changing the GST rate would create confusion.
Instead he suggests allowing businesses to offset GST against losses from the previous year.
"There would be no loss in revenue to the Government but it would
give businesses a cash flow advantage."
The National Party campaigned on ditching research and development
tax credits to offset delivery of personal tax cuts.
But Shaw thinks the move is premature given the policy has been in place
for such a short time that its effectiveness has yet to be assessed.
Shaw says, "the logical thing to do is undertake post-implementation
review of the pros and cons of what the regime has delivered - and then
determine whether it should be repealed or not.
"No one has filed any returns yet claiming research and development
tax credits so no one knows what the fiscal cost is going to be."
Reviewing government expenditure to ensure it is providing value for money is the proper way to fund tax cuts, he says.
Barnett agrees that an incentive to make investments in research
and development should stay, because "the country is dependent on
innovation".
Paul Dunne doesn't think the Government will back down on its intention,
but hopes it looks at other ways to assist businesses in this area. "Research and development tax credits are now a mainstream policy in
many Western economies."
- HERALD ON SUNDAY