MEDIA RELEASE (NZ)

Data shows New Zealand’s tax debt has reached more than $9 billion, with more than half linked to the use of Pay As You Earn (PAYE) and Goods and Services Tax (GST) to support business cashflow, predominantly in the micro and SME sector.

CA ANZ Tax Leader John Cuthbertson FCA said the figures highlight a persistent structural issue that is enabled by the current legislation.

“Employer deductions, particularly PAYE, are held on trust and should be paid to Inland Revenue shortly after wages are paid. However, many smaller businesses struggle to meet these obligations consistently and are using the deductions as a short-term cashflow tool,” said Mr Cuthbertson.

“While that may help in the moment, it quickly snowballs into unmanageable debt that can ultimately lead to business failure. It also creates an unfair playing field – where some businesses gain advantages by using funds that should be with Inland Revenue.

“We have written to Minister of Revenue, Hon Simon Watts FCA, proposing a two-pronged solution that would remove the temptation - and risk - of misusing these funds. Either option could be adopted or a combination of the two to achieve the desired outcome.

“The first option is changing legislation to mandate that businesses automatically transfer PAYE and other employer deductions such as KiwiSaver contributions at the time wages are paid. Currently, businesses are required to pay at set dates each month, which is leading to misuse of tax deductions.

“This is a simple legislative change that makes a lot of practical sense.

“The second option is to revisit subsidising payroll intermediaries for small businesses. This would look like a small subsidy for qualifying small businesses not already using a payroll provider, to help them into this service for a fixed term.

“The end goal being that most would hopefully realise the benefits of using a payroll provider and permanently switch/retain their services. Given the ballooning size of tax debt, investing a small amount in a temporary subsidy for say 1-year, should be worth the investment.

“It wouldn’t be big money, to have a system that gives peace of mind to businesses and governments.

“This would not only improve tax compliance but improve the quality of payroll record-keeping and reduce administrative pressure on small business owners.

“Ultimately, it allows them to focus on running and growing their businesses.

“It makes far more sense to stop tax debt arising in the first place, rather than letting it accumulate and then trying to collect it. Another benefit is that IR would have debt collection resource to reallocate,” concluded Mr Cuthbertson.