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Reducing SME tax compliance costs

5 December 2007

Reducing SME tax compliance costs focus of discussion document

The government is inviting feedback on ideas for reducing tax-related compliance costs for small and medium-sized enterprises (SMEs).

The ideas are set out in a discussion document released today by Finance Minister Michael Cullen and Revenue Minister Peter Dunne.

“Although tax compliance costs are a fact of business, SMEs, which make up the bulk of New Zealand businesses, bear a disproportionate burden of these costs,” Dr Cullen and Peter Dunne said today.

“We know already that New Zealand has one of the simplest business tax systems in the world. The World Bank has ranked New Zealand ninth out of 178 nations for the ease of paying taxes – that’s ahead of Australia, the US, the UK, and Canada.

“It makes sense to reduce tax compliance costs so that smaller businesses can devote more of their resources to their core business activities, which can help to boost productivity and competitiveness – as noted by the recent Business Tax Review.

“Tax compliance costs can be reduced in a number of ways, ranging from large, comprehensive reforms to smaller, less dramatic changes. Each individual change may make only a small difference, but there could be a significant reduction in compliance costs overall if a number of changes apply to the same business.

“The government has already introduced a number of big changes designed to reduce costs for SMEs in relation to GST, provisional tax and PAYE.

“Many of the potential changes presented in the discussion document have to do with raising business tax thresholds. That can mean, for example, reducing the number of tax returns a business has to file, the data it must supply, or the calculations it must make. In short, raising thresholds may mean fewer tax matters for a business to deal with.

“The discussion document also looks at ways of simplifying the law for certain expenses – such as entertainment and legal expenses. It also looks at the vexed issue of fringe benefit tax on motor vehicles, as well as simplifying GST invoices.

“The government welcomes the views of business operators and their tax advisors on whether these ideas would help to reduce their tax compliance costs on a long-term basis. If so, we ask them to prioritise the ones that will help, so the focus is on the most useful initiatives.

“We have set two closing dates for submissions: 31 January 2008 for submissions on raising thresholds, so that resulting changes can be included in the taxation bill planned for introduction in May; and 29 February 2008 for submissions on all other matters, many of which will need more detailed consideration and may be included in a future taxation bill,” the Ministers said.

The discussion document, “Reducing tax compliance costs for small and medium-sized enterprises”, is available at


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