Simplify tax maze to grow small business study

The costs of tax compliance and administration are holding back small businesses, says a survey conducted by Auckland University of Technology.

Senior taxation law lecturer Ranjana Gupta found that although small businesses were very important to the economy, regressive tax compliance and administrative costs were the greatest constraints to growth.

Last year, Gupta asked 161 New Zealand tax practitioners to identify the most complex aspects of taxation law, on a scale of one to five. Topping the list was the law on overseas share investments and the fair dividend rate method, which scored 3.97 points in terms of difficulty.

Next came rules on associated persons' income tax (3.88), frequency of tax law change and guidance from Inland Revenue (3.80), land sales regime (3.78), and the portfolio investment entity and portfolio investor rate (3.53).

The disputes resolution process gained the sixth-highest overall score.

The five least complex items were progressive tax rates (1.32), work-related/home office deductions (1.38), depreciation rates (1.52), carry forward of losses (1.63) and cash versus accrual accounting (1.75).

Gupta said most of the problems had been introduced the previous year, and simplifying tax law would lead to fewer errors and disputes, and increase overall compliance.