KEY POINTS:
The small business sector has welcomed with open arms the Government's relief package, unveiled by Prime Minister John Key yesterday.
While commentators say the five-part package won't catapult New
Zealand up the global wealth rankings, they say some of the tax changes in particular will ease pressure on
small and medium enterprises (SMEs).
Considered to be the most beneficial items are a reduction in the size of provisional tax payments, a lowering of the interest charged when businesses underpay their tax, and a simplification of the PAYE system.
From this financial year until 2010 businesses will pay provisional tax payments based only on 100 per cent of last year's tax, as opposed to 105 per cent as has been the case until now.
Ian Craig, tax partner with BDO Spicers, said while businesses have always had the opportunity to estimate their provisional tax downwards if they were having a bad year most didn't, so this new initiative would provide a boost.
"There are many, many small and medium-sized businesses who would just get a reminder from their accountant to pay based on the automatic uplift."
Craig said the Government's tax changes focused on cash flow, and "anything that helps businesses improve their cash flow or ease the burden of tax in the current climate's going to be welcomed".
PricewaterhouseCoopers partner Robbie Gimblett praised the reduction in the "use of money" interest rate the Inland Revenue Department charged on underpaid tax.
From March 1 charges for underpayments will drop from 14.24 per cent to 9.73 per cent.
The charges had been at extremely high rates "or even, I'd say, excessive rates" for some time, he said.
The change would be helpful, particularly at a time when volatile foreign exchange rates and commodity prices made it extremely difficult for some businesses to accurately predict their tax liabilities.
"So it's pretty unfair to then hit them with a really tough interest rate if they've done their best but still got it slightly wrong."
The Government has also raised the threshold under which companies are required to file PAYE payments only once a month, as opposed to twice a month for those over the threshold.
Key said the change meant about 98 per cent of Kiwi businesses would now have to file only monthly PAYE returns.
The tax advisers said this would be a huge relief.
PWC's Gimblett pointed out that many of the elements in the package not only benefited SMEs but most New Zealand companies.
Claire Massey, director of the New Zealand Centre for Research into SMEs, said it was a positive package that provided specific and practical measures.
"It's sending a signal that, 'we are listening, we can help, we are thinking about what we can do to reduce pressure points'."
She said people wouldn't be "popping champagne corks". "But I think it would be the wrong announcement altogether if they were, because everybody else in the economy would be saying 'no, you've got it wrong because you've done too much for one sector'."
Andy Hamilton, chief executive of Auckland University business incubator The Icehouse, described the initiatives as "salutary" and "pragmatic".
"These measures are all about relief, they're not about charting the path to get us into the top half of the OECD."
Other measures that were welcomed were a rise in the level at which claims could be considered by the Disputes Tribunal, from a maximum of $12,000 to $20,000, beefed-up assistance for business, including an enhanced 0800 helpline, and changes in the export credit scheme.
HELPING HAND
The Government's relief package provides:
* Tax changes, including lower provisional tax, lower "use of money" charges, and monthly PAYE returns for most.
* Beefed-up assistance, including an enhanced 0800 helpline and a mentoring service.
* Increase in threshold for claims to Disputes Tribunal.
* Greater access to short-term trade credit insurance under the Government's export credit scheme.
* State Services Commission ordered to pay its bills promptly.
