Positive response to scrapping provisional tax

  • 14/04/2016

The abolishment of provisional tax is being touted as a positive move for small businesses.

Michael Barnett from the Auckland Chamber of Commerce says it will help.

"It was difficult for small medium businesses because they were forever guessing. I think this puts some certainty into it. Companies should improve their cash flow as well."

The changeover is expected to cost around $187 million over four years.

Prime Minister John Key made the announcement yesterday.

In his speech, Mr Key acknowledged small businesses meeting their tax obligations was a "particular challenge" and announced the tax package for them.

Provisional tax requires businesses to pay income tax in instalments during the year meaning they avoid paying a lump sum at the end of the year.

Currently, anyone who pays income tax may need to pay provisional taxes including individuals, companies and trusts.

Small businesses, with a turnover of less than $5 million, would be able to choose a new 'pay-as-you-go' system for provisional tax.

"This new option drops the estimation part and instead works out your tax payments on an ongoing basis throughout the year," Mr Key says.

The change could affect up to 110,000 small businesses, starting from April 1, 2018 when Inland Revenue's new computer system is up and running.


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