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Tax Compliance Costs Down Under

1 min readBy: Andrew Chamberlain

New Zealand’s Department of Inland Revenue has released an exhaustive new study of the cost of taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. compliance for small and medium-sized businesses (PDF of full study here).

According to the DIR’s Policy Advice Division, the study shows that “tax compliance costs have decreased for small and medium-sized businesses over the last 13 years.”

But according to New Zealand’s National Business Journal, many are disputing that conclusion, since it’s inconsistent with broader annual compliance cost studies conducted by PriceWaterhouseCoopers:

According to the research, conducted by the IRD, tax compliance costs have fallen by 40 per cent for small firms since 1992, dropping from $5000 to an average of just $3000 per year in 2004…

But Business NZ chief executive Phil O’Reilly said the claims were counter to the annual Business NZ-KPMG Compliance Cost Survey, which show fairly stable average tax compliance costs around $15,000 per firm per year.

“Perhaps the different findings result from the different groups covered by the two surveys. The IRD’s study covered only small and medium-sized business, and these are the businesses most likely to be non-compliant with tax legislation. Non-compliant firms are unlikely to report their behaviour to an IRD survey, so the IRD survey pool may therefore be an unrepresentative sample.

“By contrast, the Business NZ-KPMG Compliance Cost Survey covers the complete range of business sizes, including the larger companies who have no ability to avoid compliance responsibilities.

For more on the compliance costs of our own tax system, check our previous work on the compliance cost of the federal income tax.