Businesses would be able to choose how they pay provisional tax throughout the year under a new Labour Party tax proposal.
Andrew Little says the proposal would take the guesswork out of how much provisional tax should be paid. Photo: RNZ / Alexander Robertson
Party leader Andrew Little said the policy would take out much of the guesswork, and avoid a large bill at the end of the tax year.
"Small businesses frequently tell me one of their biggest bugbears is how difficult it is to pay provisional tax."
He said under the current scheme they were forced to guess their annual income and pay tax in three large instalments.
Mr Little said if businesses got it wrong they ended up with a huge bill at the end of the tax year, which pushed some to the wall.
Under Labour's proposal, businesses could choose to pay in instalments at a rate they could adjust.
Labour would also scrap late penalties for provisional tax, and raise the threshold over which it has to be paid from $2500 a year, to $5000.
The total loss to the government would be about $15 million, according to Mr Little, taking into account the costs of scrapping penalties and lifting the threshold at which provisional tax would apply.
However, businesses would still be subject to the Use of Money Interest regime.
If a business overpaid, it could get a credit at any time or wait until the end of the year and get a refund when the tax return was filed.
As happens now, underpayments could be corrected in the terminal tax payment but there would be no penalty for underpayment.
To avoid businesses "gaming" the system by paying all of their voluntary withholding tax at the end of the year, businesses would not be able to increase the rate of those voluntary payments in the last three months of the tax year.
Mr Little said Labour had already consulted with banks and accounting companies, including MYOB and Xero, and now plans to talk to small businesses around the country to refine the proposal, which the party would plan to implement as soon as possible if elected to government.
