Tax move should simplify business

THE way that businesses pay income tax is to be overhauled. Following the successful transition of personal tax from a previous-year to a current-year basis, the Income Tax Authority plans to do the same with businesses.

'The whole point is to simplify the whole tax sector,' said Income Tax Authority administrator Ken Forman.

'Our system is already simple compared with the UK, but it's rather unwieldy and inequitable. We believe that if you tax someone on what they get in a year, you can't be fairer than that.

'It's quite a tortuous exercise because we have to go through the income tax law; which is a lot.'

The authority has created a working group, which meets regularly and which is made up of senior officers who will consider how the transitional arrangements from previous to current-year assessment should work.

'We think it will be well received by the industry and professional people who represent them because it's another simplification measure.'

Mr Forman said the change presented some practical problems.

'The biggest will be how we deal with the transitional arrangements, which is going to be the same as we had for personal income tax.

'It's got to be acceptable to all parties and seen to be fair to everyone. We will possibly use some sort of averaging process, but we have to be careful that we don't leave any room for people to abuse it.'

The way capital allowances are given will also be reviewed.

Capital allowance is tax relief awarded for expenditure on assets. At present, tax relief is available only if the capital asset belongs to the person carrying on the business. This means that expenditure on leasehold improvements or on buildings on leased land does not qualify.

'We are saying that if we're looking at business profits, let's look at that as well,' said Mr Forman.

'It would make sense. If we're going to rehash the way we assess business profits we should also assess capital allowances. It also makes sense to deal with both at the same time.

'I'd like to think that the accountants will go for it because there's a lot of nuisance value and we don't want people to get bogged down with bureaucracy.'

The moves form part of the plan to move to a zero rate of corporate tax in 2008. 'If we're going to carry that out in 2008, this project will assist it. A group of senior officers was reflecting upon how successful the recent tax reforms had been and thought 'let's go the whole hog'.

'It will be good for 2008 because everything will be on a current-year basis and will benefit the proposed arrangements.'