Questions for the Minister

NZBusiness asked readers to submit questions for Stuart Nash, the new Minister for Small Business, for the April cover story. Here is his full list of responses.

Q: “I’ve heard that there is possibly a lower tax rate being implemented for small businesses, either in their first few years of business, or for a turnover threshold. Is that true? When would it be implemented?”

A: The Government has asked the Tax Working Group to consider whether a progressive company tax, with a lower rate for small companies, would improve the tax system and the business environment. The Tax Working Group is expected to provide its final report back to the Government by February 2019.

We have also asked the Tax Working Group to look at: 

• Whether the tax system operates fairly in relation to taxpayers, income, assets and wealth;
• Whether the tax system promotes the right balance between supporting the productive economy and the speculative economy;
• Whether there are changes to the tax system which would make it more fair, balanced and efficient; and
• Whether there are other changes which would support the integrity of the income tax system, having regard to the interaction of the systems for taxing companies, trusts, and individuals.

Q: “What will you do to encourage improvements to the tax system to help small businesses? In particular, the deadline for provisional tax and GST falling on the same day in mid-January is a nightmare for small businesses (especially professional services companies) who usually have reduced income in January and February (because of holidays) and the largest tax bill of the year falling during that same period. It’s also a financially stressful time of year and that, coupled with payment delays, pushes many business owners beyond their limit.”

A: On 1 April Inland Revenue is launching the Accounting Income Method (AIM) for paying tax throughout the year. AIM will enable smaller businesses to calculate provisional tax to pay based on more real-time information so that payments better reflect cash flows. Tax payments will be smaller and more frequent.

AIM will make filing and paying tax easier so customers can focus on running their businesses with tax as a secondary consideration. Software will help with correctly classifying transactions to ensure tax is right from the start, which will reduce errors and provide customers with greater confidence that they’ve done the right thing.

Using AIM to make smaller more frequent payments spreads the tax burden across the income year and will help to alleviate the mid-January tax pressure point. Currently businesses have to opt in to AIM before their first GST payment for the year but we are looking at ways to make adopting AIM easier.

We are changing the tax system in a number of other ways. The IRD Business Transformation programme will deliver a range of changes that will significantly reduce compliance costs for all businesses (with small businesses expected to benefit to a greater degree than large businesses).

By April 2019 customers will have:

• More on-line services for all tax products;
• Integrated tax and business processes;
• Faster, more accurate tax information, providing near real-time visibility of tax;
• Faster tax refunds; and
• Less likelihood of tax debt and more payment options.

Q: “Most small business owners fund their business from equity in the family home. Many Kiwis are going into retirement with no cash and many carry large mortgages to fund their business. With home ownership becoming more difficult, tightening access to bank funding and growing debts on homes, how will the government attract more capital into small business?”

A: It is important that small businesses have access to capital in order to grow. Recent regulatory reforms have included regulations enabling crowdfunding and peer-to-peer lending, as well as allowing small capital raises of up to $2 million over 12 months without needing to comply with disclosure and other regulatory requirements.

We are continuing to watch this space and are keen to hear from small businesses about what more the Government could be doing to support them to raise capital.

Q: “The IRD has made great strides in improving tax collection. It also loses over $200 million a year from liquidations. They close more businesses than anyone else because of unpaid taxes, and manage billions of late tax payments. What is the new government’s policies around small business taxation, considering the huge impact tax issues have on small business and huge losses the IRD incurs due to unpaid taxes.”

A: We’re making a significant investment in Inland Revenue’s business transformation programme. This will change tax processes so they fit with ordinary business processes.

IR is also working to help businesses get their tax right from the start. This involves providing more information and getting alongside businesses to help them to meet their tax obligations, rather than just chasing debt once businesses have fallen behind. 

If businesses get into trouble they should contact the department as soon as possible so all options can be explored.

Q: How can you create more even opportunities for smaller businesses to access government contracts or tenders that they would be suitable for? How can you create another level to provide local businesses with opportunities for national or local tenders?  Larger companies secure the business – however they need to subcontract work to other suppliers. How can you encourage this subcontracted work to be appointed to local contractors to support local business? Can a user-friendly, well-marketed SME Tender Hub be created for business owners to access – and have equal opportunity for smaller contracts?

A: Government tenders are advertised on the Government Electronic Tenders Service, also known as GETS. This system is free to use and is designed to promote open, fair competition. Over 50,000 businesses have registered to date.

In 2013, GETS was refreshed in order to make it easier for businesses to access government tenders.  The use of GETS to advertise Government contracting opportunities is not restricted by contract value.

For the smaller contracts (less than $100,000), it will be important for SMEs to understand their target market well and engage with the relevant government agencies on what and how they can supply the government’s needs.

Government procurement systems promote open and fair competition. We periodically engage with SMEs as well as industry groups to understand what barriers there may be for SMEs accessing any of these opportunities.

We need to make sure SMEs know how to find them and bid for them. We continue to simplify our procurement processes and documentation.

Government agencies are encouraged to prioritise value for money in their procurements which can include considering the social, environmental and economic effects of a procurement. Often with regional projects, local businesses are in a unique position, given their knowledge and experience in the area, which can aid them in making convincing value for money arguments.

Subcontracting is a significant component of many government projects, particularly construction and infrastructure projects, but there can be extensive subcontracting in other industries/sectors as well.

In many instances smaller businesses will be more competitive in the supply chain as sub-contractors, rather than as the prime contractor to government.