• Bill Birch

Forthcoming measures to reduce tax compliance costs for small businesses and the self employed are among the announcements in the Government's Bright Future package.

Many of the planned changes, to be announced in further detail next month, will also introduce greater flexibility and clarity into the tax laws as they affect the self employed and small businesses, Treasurer, Bill English and Minister of Finance and Revenue Sir William Birch said today.

"The Government has made a strong commitment to simplify the tax system to make it easier for tax payers. It has already introduced the first step to assist PAYE wage earners by removing the requirement to file IR5s. The next step seeks ways to reduce compliance costs, especially for small businesses and the self employed.

"Next month we'll be releasing a discussion document on tax simplification measures inviting public submissions on a range of options to reduce compliance costs. Included in the document will be proposals to make it easier for people who do find themselves in difficulty with the tax system. For example, the Government will reduce the incremental penalties for late payment of tax from 2% to 1% a month. Penalties are there for a purpose, to promote compliance with the law, but if they're too harsh they can be counter-productive," the Ministers said.

"The Government believes the tax penalty system should be more flexible with regard to taxpayers who pay just a few days late. We would like to ease the penalties imposed on them, since they are essentially honest taxpayers and to penalise them excessively does not promote compliance.

"We plan to clarify the law relating to serious hardship, financial difficulty and instalment arrangements. At present these arrangements only apply to income tax and fringe benefit tax. Extending these to apply to all tax types and those in serious hardship, will increase the consistency of treatment across tax types and will reduce compliance and administrative costs.

"People who do enter instalment arrangements to pay their tax will have their rights and obligations clarified, and will be provided with certainty with regard to these arrangements. Furthermore, partial failure to comply with the instalment arrangement will not result in a disproportionate penalty.

"The Government is also looking at ways of ensuring that Inland Revenue and taxpayers can enter into instalment arrangements more quickly. It will raise the threshold above which the Minister of Finance is required to approve instalment arrangements or hardship remissions. The threshold will be raised from the current $50,000 to $100,000.

"Many of these issues were raised in submissions to the Finance and Expenditure Committee's inquiry into the Inland Revenue Department, and by the Committee of Experts on Tax Compliance. It is clear that these issues need to be tackled."