New Zealand’s Parties Advocate Flexible Tax System for Businesses: Labour Launches Discussion Paper On Easy Provisional Tax

The Labour Party of New Zealand has called for a more flexible tax system for businesses making companies to pay as they earn instead of predicting their annual income and paying the tax in advance. More parties are now pitching for such a flexibility in the tax administration for small businesses.

Labour’s top leader, Andrew Little, in a significant policy announcement, said his party wants to give small businesses more control over their tax payments. At the Hutt Valley Chamber of Commerce, Little launched a discussion document on the policy and said, "this proposal gives business owners the option to pay up to 100 percent of their tax through regular withholding payments, at the rate they set themselves.” He also announced scrapping of late penalties for provisional tax and increasing its application threshold from NZ$2500 to $5000.

Threats To Economy

In an indirect justification at offering relief for small businesses, Little spoke about the "worrying" domestic and international threats to New Zealand's economy ranging from dipping dairy prices to the uncertainty in China and Eurozone. He wanted the Government to try new approaches in responding to these challenges and one best way is to back small businesses, which employ 38 percent of the workforce to "become the engine of job growth in New Zealand.”

Under the existing system, provisional tax rules require a business to estimate, in advance, all its taxable profits for the year and pay the tax in three installments. “If they guess wrong they will get a big bill at the end of the year which can push a small business to the wall," Little said. Under Labour's proposal businesses can align payments to suit their circumstances. Little said flexible tax for business will ensure better control over the enterprises and make them do well, grow and create jobs.

Consensus Emerging

The Labour leader’s new approach on taxes marks a positive shift that is emerging in all political parties. A political consensus is growing among at least five parties across the spectrum in terms of supporting changes to provisional tax for small businesses. Political parties such as the Green Party, New Zealand First, National and Act are now open to backing the cause of small business owners in easing the payments of taxes. Greens co-leader James Shaw said moving to a pay-as-you-go model would give businesses more free time to grow jobs and revenue. NZ First leader Winston Peters also called for replacing the provisional tax in favour of PAYE.

ACT Party leader David Seymour hailed Labour for picking up the idea from the IRD green paper that was released in March. "Provisional tax is out of date and unnecessary in the age of digital financial transfers. The IRD needs to recognise its impact on the cash flows of small businesses,” he said.

However, the ruling National Party criticised Labour for its policy change and said it has already been announced by the Government and accused it of lifting its idea. Acting Finance Minister Steven Joyce said the Labour's policy and discussion document is "almost identical" to the one the Government had launched in March, based on National Party’s policy manifesto for the last election.

(For feedback/comments, contact the writer at k.kumar@ibtimes.com.au)