The jury is out as to whether a radical tax proposal by the New Zealand Institute of Chartered Accountants will encourage the collection of the billions of dollars of black market money sloshing around the country.
After two years of consultation with tax policy officials and small business, the institute has released its second go at what it called a "thought leadership paper" for government and business on ways to simplify tax for New Zealand's small businesses.
The goal is to strip out the complexity from the tax rules and free small businesses to be more productive.
As it stands, businesses whatever their size – from the corner dairy to giants such as Fletcher Building – fall under the same complex compliance regime with a 28 per cent tax rate, the institute said.
It wants to create a two-tier system, charging different rates by splitting off businesses with turnover of less than $600,000 from the standard compliance structure.
It's suggested that a micro business with no employees, turnover of less than $60,000 and unregistered for GST would pay 14 per cent if they are not traders and 7 per cent for businesses that trade in goods such as retailers, based on turnover. This rate would include accident compensation levies.
Businesses with turnover of more than $600,000 and registered for GST will pay income tax calculated on a cash basis from their GST return.
It will essentially be a final tax with no provisional, fringe benefit or entertainment tax applying.
To help simplify it for small businesses, the institute is calling the new structure "one rule"; no more than one hour, one return and one payment each month for income tax and GST.
Ernst & Young tax partner Joanna Doolan said it was "great thought leadership" and high time that we looked at how to reduce compliance costs and collect more tax. "Our real challenge is to try and get these small businesses to grow up."
She estimated about $8 billion of untaxed income sloshed around New Zealand each year but was undecided about whether the paper incentivised small businesses to expand or grow and whether it encouraged untaxed income to come in to the tax net.
Minister of Inland Revenue Peter Dunne didn't respond to queries.
Business New Zealand and the Employers and Manufacturers Association Northern support the policies and their objectives, saying cutting more red tape would help business be more productive.
However accountants were worried owners of micro businesses, with a $60,000 maximum turnover, would stop using them.
The institute said it was optional for businesses of this size to opt into the structure and designed for businesses that were relatively unsophisticated, with disproportionate compliance costs.
Institute chairman Terry McLaughlin concedes its proposal was radical, however it wanted to get "ahead of the curve" and be part of the debate.
- © Fairfax NZ News