Abolish provisional tax and digitise small businesses: TOP announces post Covid-19 small business reboot package

• Abolish provisional tax for small and medium business: “Unfair, disliked & complex”
• Up to $10,000 per company grants to modernise small businesses
• $10,000 per company grants to help businesses increase green energy savings

The Opportunities Party (TOP) has today announced a small business reboot package which would see provisional tax abolished, as well as $20,000 made available in grants to help small businesses go digital and implement energy-saving initiatives so they can bounce back in the wake of Covid-19.

The package emphasizes removing the unfair and disliked provisional tax system as well as boosting the productivity of small and medium-sized enterprises (SMEs) through the uptake of digital tools and energy-saving initiatives.

SMEs account for 97 percent of New Zealand businesses, employ more than 630,000 people, and contribute nearly 30 percent of GDP, making them the key to kickstarting New Zealand’s economy-post Covid-19, says Geoff Simmons, TOP leader and former Treasury economist.

“Small businesses are the bedrock of New Zealand’s economy. Their financial health determines the economic health of the country and they are hurting right now,” says Simmons. “Throwing money at the problem in the form of a continuation of the wage subsidy scheme, or subsidies to hire as National propose, is simply unsustainable. TOP would rather give businesses a hand up, not a handout.

“While the wage subsidy has provided viable businesses reprieve, for many others it’s keeping them on life support which is not a good use of taxpayer money,” continues Simmons. “Underpinning our small business reboot package is TOP’s universal basic income (UBI) policy which would see every Kiwi adult receive $250 a week.”

TOP propose that implementing a ‘financial safety-net’ in the form of a UBI would encourage more people to start businesses, by giving all Kiwis a base level of income.

“We know that many new businesses have been started since Covid-19 hit, both out of necessity and desire. These brave Kiwis are doing this with no financial safety net which is exactly what a UBI would provide,” says Simmons. “It would absolutely supercharge our recovery and that is why we continue to call on the government to introduce one immediately.”

TOP’s small business reboot policy includes:

• Abolishing provisional tax for SMEs.
• Providing free assessments and grants of up to $10,000 to help businesses take on digital technology where this will yield productivity improvements.
• Negotiating a bulk deal to get more SMEs on cloud computing applications like Xero.
• Offering free assessments and grants of up to $10,000 to help businesses improve their energy and resource efficiency.
• Removing the Fringe Benefit Tax on all electric vehicles, including bikes.
• Grants of up to $5,000 to help businesses work with universities to solve business problems.
• Growing the capacity of social enterprise Dev Academy to allow more people to gain coding skills within 18 weeks.

Abolishing provisional tax

Nelson-based accountant Nathan Silcock of Crux Advice & Accounting services over 200 SME businesses at the top of the South Island, with the majority employing under 10 people.

“Provisional tax is often unfair, disliked and misunderstood by majority of small business owners,” says Silcock. “How well SMEs deal with provisional tax is based on how good their advisor is which is unfair and has a very real negative impact on businesses not lucky enough to have access to good advice.”

Provisional tax sees companies pay tax in advance based on the previous years’ taxable income, with an additional 5-10% percent added. TOP would abolish the provisional tax collection model and have companies pay their annual tax based on their actual taxable income for the previous year.

“Provisional tax can be particularly punitive right now. Given the economic havoc Covid-19 has wreaked, many businesses have seen a drop of over 50 percent in earnings over the last few months,” says Silcock. “Under the current model, the provisional tax structure will see businesses’ taxable income for this year based on last year’s earnings, which is totally unfair and out of step with the new Covid-19 reality.”

“While there are other methods or options such as estimating tax and some discretionary temporary Inland Revenue relief, some options come with a hidden risk of interest charges from Inland Revenue and many taxpayers will just be completely unaware of the options.”

Silcock says another common complaint from SMEs is Inland Revenue interest charges.

“I have never met a client who appreciates how Inland Revenue charges interest. The rules are complex, but the main complaint is the difference in interest rates,” says Silcock. “The current rates when Inland Revenues owes the taxpayer money is 0 percent, if the taxpayer owes Inland Revenue money it’s 7 percent. No one thinks that’s fair.”

Digitising small businesses

TOP’s small business reboot package takes aim at 20th century analogue business management systems which still underpin many small businesses.

TOP would provide free professional assessments and grants of up to $10,000 to help businesses take on digital technology so as to yield productivity improvements. The use of cloud-based service applications such as Xero and Dropbox can effectively modernise many small “mum-and-dad” businesses by creating significant time savings.

“The benefits of digital business tools can’t be overstated,” says Mathew Pottinger, TOP Nelson candidate and owner of high-tech small business, One Giant Leap. “Speaking personally, I know that having all of my business processes run digitally saves hours of time, freeing up resource to put towards the sales side of my business.

“We want to see our small businesses thrive and we believe there are smarter ways of helping small businesses than a wage subsidy. One of those ways is to future-proof all half a million businesses in the country by getting them access to digitals business tools.”

A report by the New Zealand Institute for Economic Research from March this year estimates that the economic benefit of a 20 percent increase in the uptake of cloud computing would be an increase of real GDP by between $3.5 billion and $6.2 billion.

Energy saving

TOP’s small business reboot package would implement free professional assessments and grants of up to $10,000 to reduce the energy consumption of small businesses and farms. Improving the energy efficiency of heating, cooling, and lighting, would contribute to lowering the overall energy and financial expenditure of an enterprise. A similar scheme called the Energy Efficiency Directive in Europe has proved to dramatically improve energy and cost savings.

“Energy savings also reward SMEs with a significant cost saving,” says Simmons. “New Zealand is 20 years behind Europe in the green-energy revolution and it’s an absolute no-brainer because it saves companies money, while protecting the environment.”

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