Is this tax idea too simple?

A Guest Post and Tax Working Group Submission

In view of the recent positive impact on the US economy, caused by the slashing of corporate tax rates by Donald Trump, I believe New Zealand has the opportunity to follow in similar fashion.

While I believe the US initiatives are a  positive move, I do believe they are still flawed in the fact that every company benefits.  What I do not agree with is that it does not address is the definition of a company, as most registered companies are only established for single individuals to take advantage of loopholes in the company tax laws.   For example, the majority of “professional people”, no matter where they work, are self employed, be it company management, doctors, lawyers, engineers, media, real estate salespeople, bankers etc.  Very few of this top echelon of earners are PAYE employees, but under the existing tax laws they get the same tax benefits of companies that employ full time PAYE employees and/or are exporters.  

The amazing thing about current tax laws is that all the talk is all about trying to make the tax system more simple.  The question I ask is why?   We now live in a world full of computer technology, that basically makes it very easy to implement a company tax system that can be tailored to each individual company.

By using computer technology, we can now streamline the entire process and tailor the amount of tax paid by each individual or company, based on each entity’s separate circumstances.

In regard to company tax, if the government was run like a business, then the company tax system should structured long the lines of “you do something for us and we will do something for you”.

For example, if the government wants companies to employ people and export things, then rather than have a “one size fits all” company tax policy, they should implement a corporate tax policy whereby, companies that employ people and export things should be taxed a lot less than a business, that makes the same amount of money, but does not provide the same benefits to the economy.

For example:

  1. “Company A” is a small NZ manufacturing company that has an annual gross earnings of $4,000,000, employs 10 full time PAYE staff, with export earnings bringing in 50% of their    gross earnings.  This company makes a gross profit of $1,000,000 per year, with net profit before tax of $400,000 per annum.
  1. “Example B” has a small NZ importing business that has an annual gross earnings of $4,000,000, employs two full time PAYE staff and makes a gross profit of $1,000,000 per year, with nett profit before tax of $400,000 per annum.

By implementing a simple tax algorithm based on the parameters outlined above, which means NZ companies will be taxed less, based on the amount of full time employees and the amount of income generated from goods they export.

The basic format proposed is:

  1. For every $100,000.00 of gross profit a company makes, they must employ a full time PAYE employee.
  1. The percentage of total turnover generated from exporting, should be also divided against the nett profit to calculate tax to be paid.

For example:

Company A has 10 full time staff, turns over $4,000,000 in revenue and makes a Gross Profit of $1,000,000, and has net profit before tax of $400,000.  Because they employ 10 people, who individually pay income tax, the company tax rate will be 15% on their total net profit, paying $60,000 in corporate tax.

Eg   10 x $100,000 = $1,000,000  NP =  $400,000 x 15% = Total Tax Payable $60,000

If the same company only employed 6 people, then they would pay 15% tax on 60% of Net Profit before tax and 40% on 40% of NP, paying :  60% of NP = $240,000 x 15% = $36,000  PLUS 40% of NP = $160,000 x 40% = $64,000  TOTAL Tax Tax Payable = $100,000.00

As company A, also generates 50% of their income from exporting the goods they manufacture in  overseas, they can then calculate their tax by dividing their $60,000 net profit by 70% which means their TOTAL TAX PAYABLE pay $42,000.00 corporate tax on $400,000.00 nett profit.

Alternatively, Company B copies the product of business A and arranges to get it made in a sweat shop in Asia.   This business has exactly the same turnover, GP and net profit, as Business A, but only has two full time employees in New Zealand

In this case business B because the employ only 2 full time PAYE employees, they would pay 15% on 20% of the nett profit and 40% on the remaining 80% of nett profit.

This means that they would pay 15% on 20% of $400,000 (15% x $80,000) = $12,000, plus 40% on $340,000 =  $136,000.00, making $148,000.00 total tax on $400,000.00.

All this would take is a simple “fill in the gaps” online form and “milli-second” computer calculation from the existing company balance sheet to calculate the tax payable.

Do you want:

  • Ad-free access?
  • Access to our very popular daily crossword?
  • Access to daily sudoku?
  • Access to Incite Politics magazine articles?
  • Access to podcasts?
  • Access to political polls?

Our subscribers’ financial support is the reason why we have been able to offer our latest service; Audio blogs. 

Click Here  to support us and watch the number of services grow.

As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.

Listen to this post:
Voiced by Amazon Polly