Tax concessions worth $480 million make up the lion's share of Prime Minister John Key's business relief package and have been described by Dunedin tax specialists as "eclectic" and "balanced" - but there should be more to come.
In response to the financial turmoil enveloping the world, Prime Minister John Key yesterday announced tax, compliance, exporting and credit access changes to support small to medium enterprises, the sector which employs the most New Zealanders.
Deloitte Dunedin tax partner Steve Thompson said when contacted there was "no silver bullet in any stimulus package" and yesterday's announcement was evidence of that.
"[However] the eclectic aggregation of business measures will be well received by businesses. Hopefully, they are a sign of things to come, in terms of a greater pragmatism and realism in tax policy reform," Mr Thompson said.
On the question of more reform, Mr Key said in a speech to the Waitakere Enterprise business club yesterday the Government would remain open-minded on future steps if economic conditions deteriorated, but couched that in terms of "striking a balance" so that those decisions not "undermine prosperity" nor "diminish opportunities".
Mr Thompson said the likely most welcome and overdue measure was that dealing with interest and the penalties rate reduction to 9.73% from 14.24%.
"This has been one of the major tax irritants for New Zealand businesses for some time and is a long overdue reform," he said.
Mr Thompson said although no-one would have expected it to be in yesterday's relief package, one matter that was "absolutely critical" was determining the ultimate destination of tax reform and/or a framework for evaluating tax policy initiatives.
Scott Mason, principal, taxation consulting at WHK Taylors said, when contacted, there were positive changes in the relief package, both within the tax and non-tax arenas.
However, he wanted to see a hold put on some proposed legislative changes which "created confusion and added complexity".
"Overall, this seems to be a well-thought-out and balanced package. Although it does contain some items that are of little or no real value in the current economic context, the clear message it sends is one of support and understanding by a new Government for struggling businesses," Mr Scott said.
Good news lay in the Government's lifting many of the thresholds, such as payroll, fringe benefit tax and GST to levels above the already announced changes.
It was a positive move which would allow some businesses to streamline administrative processes more.
"Having said that, I would have really liked to see the Government put a hold on some legislative changes contained in the current Tax Bill which do nothing but create confusion, add complexity and extend the tax base," he said.
One example of that, in particular, was the new associated persons provisions, which Mr Scott believed should be referred back to a new select committee for proper consideration, "especially given the current economic environment".
Mr Thompson said it was interesting to note that there appeared to be a greater degree of pragmatism being adopted by the Government.
The best example was the proposed increase in the fringe benefit tax exemption threshold for minor benefits, of $200 per quarter per employee, to a maximum of $15,000 over four quarters for all employees and, secondly, the change of $300 per quarter per employee to a maximum of $22,500 pa for all employees.
"Historically, the thought of any such measure would have sent officials into a tailspin at the perceived avoidance opportunities, whereby employers could seek to save tax by providing such benefits," Mr Thompson said.
Hopefully, this was a sign of things to come, as seeking a level of precision in certain cases, such as fringe benefit tax, did no more than materially increase compliance costs.
Mr Thompson said Mr Key referred to the lowering of the provisional tax estimate being temporary, applying only for the 2009 and 2010 income years.
"We would expect, however, that the measure will be extended unless economic conditions improve," he said.
The type of new or changed framework required for businesses to be attracted to or retained here, included law covering both New Zealand-owned and foreign-owned businesses which operated domestically and globally, Mr Thompson said.
Mr Scott said it was "about time" the interest charge was reduced, from 14.24% to 9.73%, noting the rate for overpayments would also fall, from 6.66% to 4.23%.
"Notwithstanding the natural lowering of rates following the finance markets and official cash rate, the 8% gap between what IRD pays and receives was always penal and inappropriate.
"The 5.5% is still a healthy margin but more acceptable. Most businesses seek to pay their tax correctly but no-one is immune from mistakes," Mr Scott said.
He said changes to the Disputes Tribunal, where claim levels of $7500 and $12,000 would respectively be increased to $15,000 and $20,000, should not be underestimated.
As conditions became tougher, relationships broke down, people took "short-cuts" and litigation increased.
Being able to seek valid remedies cheaply was good news. Collection under small claims court rulings would continue to be problematic, though.
Mr Scott said the package did contain some items "of little or no real value in the current economic context", and which were already "neutral"- such as not adding 5% for growth to provisional estimates, or the rise of the GST threshold to $60,000.
Some companies below that threshold should be registered voluntarily, depending on the nature of their business.
At a glance
Government's relief package for small to medium businesses.
The tax changes include. -
-Temporarily reduce amount of provisional tax; from estimate based on 105% of last year's tax to 100% (less a 5% growth factor).
-Ease penalties on incorrect tax payments, from 14.24% to 9.73%.
-PAYE filings from fortnightly to monthly; threshold raised from $100,000 to $500,000.
-Fringe Benefit Tax (FBT) filing from quarterly to annual and threshold raised from $100,000 to $500,000.
-FBT raised from $200 to $300 per quarter, per employee, and from $15,000 to $22,500 a year per employer.
-FBT interest rate for loans down from 10.9% to 8.05%.
-Need for GST registration threshold up from $40,000 to $60,000.
-Legal expenditure tax deductibility, up to $10,000 per year, can be deducted.
Also. -
-Trade credit insurance extended by NZ Export Credit Office.
-Government departments urged to pay accounts on time.
-Expansion of Disputes Tribunal jurisdiction over small claims to reduce time and costs spent in district courts. Claims up from maximum $12,000 to $20,000.
-Free business advice: 0800 help-line, business health assessments, risk-mitigation seminars, expansion of Government advisory services.
