Labour is launching a new proposal designed to provide New Zealand businesses with more flexibility and control over when they pay their tax, a move which has been significantly questioned by the Government.
“I am launching a discussion document to give businesses the option of paying their income tax through a system similar to PAYE called Flexible Tax for Business,” says Andrew Little, Opposition Leader.
“Business people know their business better than the IRD so Labour wants to let business owners tailor their tax payments to fit their cash flows.
“Small businesses frequently tell me one of their biggest bugbears is how difficult it is to pay provisional tax.”
Little says under the current system they are forced to guess their annual income and pay tax in three large instalments throughout the year.
“If they guess wrong, they can be faced with a big bill at the end of the year which can push a small business to the wall,” Little claims.
Under Labour’s proposal, businesses will have the option of choosing to pay their tax through regular instalments at a rate they can adjust.
For Little, this means businesses can align their payments to suit their circumstances.
“To further help our businesses get ahead, our proposal scraps harsh late penalties for provisional tax, and raises the level at which provisional tax kicks in from $2500 to $5000,” he adds.
“Flexible Tax for Business is about giving our businesses more control over how they pay tax. That’s how we will help them do well, grow and create jobs.”
From here, Little says Labour will be sending out the discussion document for feedback from business owners around the country on how the party can improve the proposal before taking it into the 2017 election.”
Following the announcement, Acting Minister of Finance Steven Joyce mockingly congratulated Little on “finally announcing his first ‘new’ policy after eight months in the job”, accusing the new leader of “a cut and paste of a previous Government announcement.”
“Labour announced it was launching a discussion document on changes to provisional tax for businesses,” Joyce claims.
“However it seems to have overlooked that the Government launched its own discussion document containing almost identical proposals back in March.
“These in turn were based on National Party policy at the last election.”
According to Joyce, the Government has already consulted on proposed changes to provisional tax including a business PAYE, changes to use-of-money interest and penalties, increased use of tax pooling and the use of tax accounts.
Also, a Green Paper was launched on 31 March this year and submissions closed on 29 May.
“Feedback on the Green Paper’s suggestions has generally been supportive, and provisional tax was the part most commented on,” Joyce adds.
“As we’ve said previously, the changes will require new technology to be implemented, which will be developed as part of the IRD’s Business Transformation project. Quite why Labour has started its own consultation is beyond me.”
Submissions are now closed but the Joyce claims the Government “would be happy to accept” a late submission from the Labour Party in support of the proposal.
“We also appreciate its implied endorsement of the Business Transformation process that will make these policy changes possible,” Joyce.
Across the industry however, Labour's announcement of a new option to pay provisional tax for small and medium business has been claimed to be “an idea worth considering.”
“The option, dubbed Flexible Tax for Business by Labour, will allow a business to nominate a withholding tax rate based on their estimated taxable profit,” says Mr Geoff Nightingale, Tax and Private Business Leader, PwC.
“If they do that, late payment penalties will no longer apply and the safe harbour where they are not exposed to interest on provisional tax underpayments will be significantly increased.”
While tax pools have assisted businesses manage provisional tax for a decade now, Nightingale believes this idea would provide another sensible option to take the sting out of getting provisional tax wrong.
“This idea is likely to be capable of implementing in some form even before Inland Revenue completes its current business transformation,” Nightingale adds.
“Once Inland Revenue’s business transformation is complete, the Flexible Tax for Business can likely be improved and extended even further.”