Cost of tax compliance higher than expected

Press Release – University of Canterbury

Cost of tax compliance higher than expected, Canterbury tax professor says

November 30, 2014

A University of Canterbury tax professor says the overall costs of compliance for small to medium businesses is higher than the most recent published study undertaken by the Inland Revenue Department but, but slightly lower overall than for a recent and comparable Australian study.

Professor Adrian Sawyer has released the findings of a recent survey of small to medium New Zealand businesses carried out in with Auckland senior tax lecturer Dr Ranjana Gupta.

“We found some small businesses are not taking full advantage of the limited tax concessions, thereby possibly paying more in tax than they need to. This is partly due to a lack of awareness, but also may be a result of the costs involved in utilising these concessions, Professor Sawyer says.

“Eighty-seven percent of businesses use an external advisor for tax compliance work for all or some of their compliance activities. This may in part be a result of not being able to do all compliance activities in-house. Or it could be a more cost-effective way to comply.

“We surveyed 118 small to medium businesses and on average they spent 479 hours a year on tax compliance, with most time spent on GST (276 hours a year), then income tax (113 hours a year) and PAYE (74 hours a year). Many businesses get their external advisor to do their income tax returns and some use payroll intermediaries to do their payroll and thus complete their PAYE obligations.

“In smaller businesses the owners spend more time on compliance activities and unsurprisingly, as the businesses get larger, employees undertake more of the compliance work. Sixty-two percent of respondents accepted that there were some benefits to undertaking tax compliance activities, such as better record keeping and knowledge of their business affairs.’’

Businesses that responded to the survey came from agriculture, forestry, fishing, mining, manufacturing, construction, wholesalers, retailers, accommodation and food services, transport, postal and warehousing, information, media and telecommunications, finance, insurance services, rental, hiring and real estate services, professional, scientific and technical services, administration and support services, and health care and social assistance.

Professor Sawyer says the study will make a valuable contribution to tax compliance cost information in New Zealand. The results showed that recording information was the most time consuming activity and accounted for more than 50 percent of the total time spent on different activities by all businesses. The full results of the study will be published early next year.


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