End of Provisional Tax Would be Lifesaver for SME Companies Says Business Mentors NZ

Proposals to end provisional tax and replace it with a business PAYE system would be a lifesaver for small and medium sized enterprises (SMEs) says Ray Schofield, CEO of Business Mentors New Zealand, the only national, volunteer business mentoring organisation.

Revenue Minister Todd McClay has announced the proposal to axe provisional tax and introduce a form of "business PAYE" among a raft of other possible reforms contained in a green paper seeking public submissions by May 29. 

Mr Schofield says: ‘It would be the end of a nightmare for many SMEs, which run into trouble early in their development and get hit by what is in effect a double whammy at year two. No wonder that 50 per cent of new businesses fail at that stage and don’t make it into year three. A move to a PAYE basis would be good news because it would ease SME cash flow over that difficult period from startup.

‘It would also reinforce the message that income tax is an ongoing liability best managed in monthly installments. Businesses would be forced to keep track of their monthly net profit - in the same way that the introduction of GST forced them to prepare regular sets of accounts.

‘Managing tax is a major challenge for many people during those first months and early years of setting up a business. Our business mentors have to address SME cash flow problems arising from failure to pay tax (both income and GST) far too often - and worse still, far too late in the piece. We know from mentoring them that many SME's forget that 30 per cent of their gross turnover doesn't belong to them.’

Mr Schofield points out if only owner operators got themselves a business mentor earlier, more of them would survive: `Our volunteer mentors often arrive just in the nick of time but there are still many business people who won’t ask for the help that could see them through a rough patch. By the time provisional tax really kicks in it is often the final straw and because most of these companies have such fragile cash flows it’s often an insurmountable hurdle. For this reason alone - early intervention by a mentor is of critical importance.’

Business Mentors New Zealand helps around 250 businesses find a mentor every month and has assisted more than 70,000 small to medium-size enterprise owners in New Zealand since 1991. Business Mentors provides access to almost 2,000 volunteer mentors. Clients of the Business Mentoring Programme pay a $225 plus GST registration fee.  After registration the mentoring is free for up 12 months. The registration fee helps to cover the operational costs of the programme.

For more information please visit www.businessmentors.org.nz