Compliance Costs Fall For NZ SMEs

by Mary Swire, Tax-News.com, Hong Kong

01 September 2010

New Zealand’s Revenue Minister, Peter Dunne, has announced that, according to an Inland Revenue report, small and medium-sized businesses (SMEs) are spending nearly a fifth less time on tax matters than they did five years ago.

The report, entitled ‘Changes in SME Tax Compliance Costs 2004 to 2009: Evaluation Report’, shows that the main contributor to reduced costs is the 17.5% decrease in the number of hours (16.3 hours fewer) that businesses spend on tax, especially the time spent by owners.

On the other hand, the main additional costs are KiwiSaver, which was introduced in 2007, and an increase in the value of time over and above inflation. For example, the value of owners' time increased 17.4% to NZD61.12 (USD42.79) in the five years to 2009. So, whereas hours have reduced, the positive impact of this is neutralized by the increase in value of time.

All movements, netted out, result in a reduction of 1.3% in the average tax compliance costs for all New Zealand SMEs from 2004 to 2009. While this decrease is relatively small, it includes the additional costs introduced by KiwiSaver.

The overall change is an average. When looked at by tax type, goods and services tax (GST) had a moderate decrease and income tax a small one. Pay-as-you-earn (PAYE) had a moderate increase and fringe benefit tax a large one, although the latter started from a small base.

The level of stress, it is said, is also a useful general indicator of the compliance burden, and stress with meeting all Inland Revenue requirements (excluding finding the money) decreased overall from 3.4 to 3.2 (on a 7-point scale). Stress (including finding the money) decreased in relation to provisional tax, GST and PAYE.

The report notes that “the many changes over recent years in tax policy and administration, whether aimed specifically at reducing the burden of tax or where this is consequential, are designed in ways to effect small but cumulative changes to minimize compliance costs. The reduction in time could well be the accumulation of the many improvements over the five years. The evidence at hand shows that this seems to be happening.”

Dunne said that, while SMEs need to meet their tax requirements, “the more that can be done to cut the time and cost of compliance, the better”. He added that, in the government’s opinion, “the positive changes are the result of a government focus on minimizing compliance costs over the past five years”.

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