Tax compliance takes less time but costs the same

Small and medium-sized businesses are spending much less time on tax than five years ago but the cost of compliance is almost unchanged, an Inland Revenue Department survey shows.

Between 2004 and 2009 SMEs spent 17.5 per cent less time doing their tax, the survey shows.

That was a time saving of more than 16 hours, including the additional 14 hours needed to deal with KiwiSaver.

But any cost savings have been wiped out by the higher value of a business owner's time, which increased 17.4 per cent over and above the rate of inflation to $61.12 an hour, Inland Revenue says.

This meant the average cost of compliance was just 1.3 per cent lower at $5557.

Revenue Minister Peter Dunne said the drop in overall compliance costs was "small but significant" considering the introduction of KiwiSaver and more employees repaying student loans over the past five years.

But Institute of Chartered Accountants tax director Craig Macalister said the reduction was "underwhelming after a succession of government-driven initiatives aimed at reducing compliance costs".

Compliance costs for businesses with up to five employees remained significantly higher per employee than for larger businesses, Mr Macalister said.

A new approach which moved away from the one-size-fits-all model to one specifically designed for small business was needed, he said.

The institute has developed a model which includes allowing the smallest business with a turnover below $60,000 to pay a "turnover tax" of up to 14 per cent.

This could also apply to tradesmen who do some cash jobs at the weekends.

For small businesses with six to 19 staff, GST and income tax could in effect be merged.

Inland Revenue found that businesses with no employees and those with more than 20 staff have benefited most from its efforts to reduce compliance costs.

Those businesses employing between six and 19 workers experienced higher costs in most respects.

By tax type, GST had a moderate decrease in compliance costs and income tax a small one.

PAYE was up moderately and fringe benefit tax by a large margin, but on a small base.

Stress levels associated with meeting Inland Revenue requirements, not including finding the money, had reduced from 3.4 points on a seven-point scale to 3.2 points.

- © Fairfax NZ News