PAYE plan for business in major tax shakeup

Revenue Minister Todd McClay.

Proposal for reform would see companies paying in much the same way as individual.

The Government is floating the idea of businesses paying their tax on a pay-as-you-earn (PAYE) basis, in the biggest proposed shakeup of the income tax system since its introduction in 1957.

Revenue Minister Todd McClay announced the proposal to introduce a form of "business PAYE" among a raft of other possible reforms planned for the next three years aimed at modernising and simplifying the tax system, while improving the rate and accuracy of tax collection.

Under the current system, companies pay tax and GST at different times throughout the year, however the proposed changes would allow companies to view and update tax history regularly.

Xero managing director Victoria Crone said the proposed changes were a positive step forward and would mean time saving and easier use for customers, particularly for those that paid provisional tax - where revenue for the year was estimated and then tax calculated from the estimate.

"[With provisional tax] companies sometimes get lumped with big payments or not depending on the estimate," Crone said.

"Most businesses do want to pay tax and don't want to stuff it up so it can cause a fair amount of stress when you get the provisional tax payments wrong. So there's time saving and also less stress on the business when you know where you stand and your tax payments are better."

PwC tax and private business leader Geof Nightingale described the proposed changes as fundamental and ambitious.

"The tax system touches nearly every New Zealander and redesigning the tax system is a huge challenge. It is crucial any changes are well considered and implemented as seamlessly as possible," he said.

"Small businesses in particular would feel compliance costs in coping with the changes falling on them disproportionately in the shorter term, however New Zealand businesses will be better off in the longer term, with the changes set to save them costs and time."

Crone said the move online would also allow for faster dealing with tax issues and reduce errors with information being able to be quickly and securely transferred to the IRD without the need to manually copy data and fill in paper returns.

"So it's time saving for customers ... there's less opportunities for mistakes."

McClay said the Government planned to deal with tax administration and PAYE/GST rules, and withholding taxes on labour income this year, followed by initiatives on investment income information, individuals' interactions with the IRD, and business taxation. Social policy interaction with the tax system would be tackled in 2017.

Tax plan

How is tax currently paid?
Under the current system GST and PAYE are paid three to four times a year, and often estimated for the full year at the end-of-year return.

How will the proposed system work?
Under the new system tax can be paid and calculated more frequently, giving companies a better idea of tax status.

Why is this being changed?
The change is part of a move to modernise and simplify the tax system in the next three years to increase the rate and accuracy of tax collection.

Read the full Green Paper here

- additional reporting BusinessDes