If the Government manages to push through the
recommendations of the Tax Working Group (TWG), the 450,000 or so small
business owners in this country will be hit with massive compliance costs.
Small business, meaning all sole traders and including
businesses with up to 20 employees, are the back bone of the New Zealand
economy.
Their contribution to our economy is enormous. Together
small businesses employ roughly 30 per cent of our entire work force and
contribute roughly $65 billion to New Zealand's annual gross domestic
product.
That's over 25 per cent of everything this country
produces manufactures and sells every year.
In order to implement Labour's controversial capital gains
tax (CGT), the TWG have proposed that every business in New Zealand must be
valued by a professional valuation expert all on the same day.
This is not only ludicrously impractical, if not impossible,
but the cost to be piled on businesses to comply with this will be horrendous
and in some cases crippling.
The compliance costs forced upon small business will run
into the billions – I estimate $10,000 on average for each small business,
meaning $4.5b of costs forced upon them by Labour tax policy.
These are our businesses that can least afford this cost –
their profit margins are already being squeezed by the multitude of other costs
they are facing today with wage increases, fuel cost increases and impact of
our dollar falling on importers.
Exempting the family home from CGT, but hammering our small
business owners, is hardly going to be the magic pill to encourage a shift away
from property into more productive assets as is Labour's grand plan.
The TWG is recommending that CGT applies to assets already
owned on the date the law comes into effect.
Making CGT apply to assets bought after the tax becomes law
is by far the easiest and fairest way to bring in the legislation. It avoids
the messy and expensive exercise of coming up with a value for these assets.
This method is also fairer on taxpayers since the new tax
only applies to assets bought after it's introduced so individuals and
businesses know what tax they might be on the hook for at time they buy an
asset.
New Zealand is a country of small business owners. These are
the corner dairy owners, the panel beaters, the builders, the hairdressers, the
local butcher and the local fish and chip shop who are in many cases earning
just enough to pay the bills to keep their business going.
They also employ people who pay taxes and spend the money
that keeps our economy going.
Let's consider for a moment how impractical and ill
considered the TWG proposal is.
Imagine 450,000 business owners all rushing out on the same
day to find a local business valuation expert to value their business.
Valuing a business is a far more complex and expensive
exercise than valuing a house or commercial property. Sales data is not readily
and publicly available for businesses in contrast to houses and commercial property.
The main asset most businesses own can't be seen or touched
because it's the intangible goodwill tied up in the owner's expertise and
knowledge, making it a very hard asset to value.
I don't know the last time Sir Michael Cullen and fellow TWG
members tried to get a business valued but I can tell you through many years of
experience, it is a complex and expensive exercise.
For a start, there are only a handful of professional
business valuation experts in most New Zealand towns and cities. Also it's
not cheap to hire a professional business valuation expert.
In most cases, you
won't get any change from $10,000 and in many cases it will be much more than
that.
Prices for this service will sky rocket. And small
businesses will be forced to pay the bill – and the tax when they come to sell
their business.
Successfully implementing a major reform to our tax system
is a notoriously challenging and politically dangerous exercise.
All previous governments that have looked closely at
introducing a CGT have walked away from the idea once they realised the
minefield of issues they had to navigate to both design the tax so it is fair,
easy to understand and not too onerous on taxpayers to comply with.
This dilemma is exactly the position the TWG finds itself in
now.
But that is not justification for suffocating the 450,000
small business owners of this country.
The impact on this group will be enormous,
disproportionately larger than on big business.
The TWG needs to gets real and come up with a workable and
inexpensive way to implement its proposals or tell the government it can't be
done.
Capital gains tax may once again be destined for scrap heap.
And perhaps that's where it should stay.
Troy Bowker is the chief executive of Caniwi Capital. This article was first published on Stuff HERE.
Troy Bowker is the chief executive of Caniwi Capital. This article was first published on Stuff HERE.
1 comment:
economics 101 is that the private sector pays for the public sector. All private sector enterprises, small and big, generate taxes from profits and taxes from their employees wages and salaries. These private sector taxes are used to pay for both the wages AND THE TAXES of the public sector. If you deduct the public sector from the number of workers in total in NZ and then deduct those working for larger enterprises ( over 20 employees ), you will find that amounts to about 90 percent of the private sector workers. So as you say , these people are the backbone of the country, and the small business operators who build and maintain the organisations that sustain them are treated like dogs. There needs to be created a national "association" just for small businesses ( less than 20 employees ). The set up and running costs shall be tax deductible. Small businesses don't have human resource departments and departments for compliance with a host of other regulations many of which are unnecessarily onerous. They have got to become a political lobby group in their own right. As the creation of such an association is in the public interest, the government such fund its establishment.
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