Compliance problems with tax, employment law

28 Sep 2006

Compliance costs have increased for four out of six business sizes, with tax and employment law the top concerns, according to the latest annual survey of business compliance costs.

The 2006 BusinessNZ - KPMG Compliance Cost Survey shows tax is the biggest compliance cost by a large margin, followed by compliance costs generated by the Employment Relations Act, Holidays Act and Health & Safety in Employment Act.

1,400 businesses were surveyed this year – the largest respondent rate so far, and the most representative of the New Zealand business sector, because this year’s survey contains more small businesses in the survey sample.

BusinessNZ Chief Executive Phil O’Reilly says the picture conveyed by this year’s survey is unfortunately no better than last year’s. “Compliance costs remain high and remain a significant concern to New Zealand business,” he said.

Tax too complicate

KPMG Tax Partner Paul Dunne said the survey showed over 41% of total compliance costs were for tax-related issues – the highest concentration on tax since the survey began in 2003. Also, more than 81% of respondents felt it necessary to use external advisers for tax compliance – again, the highest percentage since the survey began.

“The survey results point to the need for legislative and administrative improvements by government and the IRD. There were a number of recent Government initiatives designed to reduce compliance costs. We will be interested to see if these have any impact on next year’s survey results.”

“This year’s survey highlighted the complexity and time involved in calculating provisional tax payments, and preparing annual income tax returns, PAYE, fringe benefit tax and GST returns. Respondents are telling us that tax is too complicated for the average person to deal with. This is not helpful for starting or growing small businesses,” Mr Dunne said.

Higher compliance costs for small business

Mr O’Reilly said the increased numbers of small businesses in the 2006 survey was useful, as it confirmed the trend of the last three surveys, that compliance costs fall more heavily on small than large businesses.

“This year’s survey shows that small businesses with less than 10 employees face compliance costs averaging around $3,000 per employee. But larger companies with more than 50 employees have compliance costs of less than $1,000 per employee.”

“When you consider that the vast majority of New Zealand businesses are small, you can see how important it is for regulatory and legislative requirements to be tidied up and slimmed down. Our politicians need to consider the impact on business when passing new laws and imposing new regulations.”

Overall compliance score: costs up for 4 out of 6 business categories

The 2006 sample includes more small businesses in the sample than in previous years and more accurately reflects the composition of the New Zealand business sector.

There are several ways the resulting data can be sliced, each giving a slightly different emphasis to the results. For example, average compliance costs per employee have gone up, while compliance costs averaged across all businesses have gone down.

A more accurate picture of the compliance burden in 2006 than either of the above, given the change in composition of the sample, is compliance costs per employee according to size of business.

The survey covers six company categories (by size of firm): 0-5 staff, 6-9 staff, 10-19 staff, 20-49 staff, 50-99 staff, and 100+ staff. In 2006 compliance costs increased for four of the six company categories.

ERA, Holidays & OSH

Respondents said employment-related compliance costs continued to be very high, with particular concerns about ERA grievance claims, OSH paperwork and costs from administering a complicated holidays system.

Helpfulness of government agencies

Respondents ranked the Companies Office, Customs Service and MAF as the most helpful agencies, and ERMA and the Ministry of Health as the least helpful. The Companies Office has consistently been a stand-out performer in the survey, with respondents giving many positive comments on their website, staff and procedures.