FIRST CUT: Key announces major provisional tax reforms

FIRST CUT: Key announces major provisional tax reforms

By Pattrick Smellie

April 13 (BusinessDesk) - Lumpy provisional tax payments will become a thing of the past for small and medium sized businesses under a business tax reform package announced by Prime Minister John Key in the first major speech ahead of the May 28 Budget.

Provisional tax will allow businesses to choose a pay-as-you-go option rather than the current provisional and terminal tax system, which at present requires three annual payments.

To be able to use the new regime, businesses will need to be using a cloud-based accounting system linked to the Inland Revenue Department, such as Xero or MYOB, to allow two-monthly calculations, based on the information contained in their accounting systems.

Xero shares rose 2.3 percent to $17.09, their highest level in more than two months.

"Around 30 to 40 percent of businesses currently use cloud-based accounting software but this is expected to grow to 85 to 90 percent in the next 10 years," Key said in a set of announcements likely to encourage faster uptake of online accounting.

Also in the package is the elimination of use of interest charged for underpaid tax "for the vast majority of taxpayers," said Key.

Contractors will be able to choose a withholding tax rate that meets their circumstances rather than having it preset, with the lowest rate of withholding tax set at 10 percent.

The package comes at a cost of $187 million over four years and will come out of a new spending allowance for the 2016 Budget, with most changes beginning next April.

The ongoing 1 percent monthly penalty will be scrapped from April 1, 2017, for new debt, although immediate penalties and interest charges for late payments will continue to apply.

(BusinessDesk)

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