Tax move aims to ease pressure on firms

Press, 14 December 1977, Page 3

Tax move aims to ease pressure on firms

l PA Wellington The Government, yesterday announced tax relief to overcome liquidity problems in the manufacturing, retail, and wholesale businesses. [ The relief, as announced [by the Prime Minister (Mr [Muldoon), in a statement to [Parliament is based on the lvalue of stocks held by companies — or individuals — on April 1, and will apply in the present financial year. Companies will be able to deduct 5 per cent of the value of stocks held on April 1 from their assessable income for the 1977-78 year. This means, for example, that a company holding stocks worth $lOO,OOO on April 1 will be able to deduct $5OOO from its assessable income and pay tax at the normal company rate of 45 per cent on the remainder. If such a company’s in= come were $lO,OOO, there[fore, its tax would be et[fectively halved. I Mr Muldoon said the Government had introduced its mini-budget in October to ensure that spending would not decline and to maintain business confidence. Most of the mini-budget’s, provisions were already in effect or in policies close to implementation, he said. But Mr Muldoon said: “The business community is in a difficult liquidity position, as demand has not been sufficient to prevent a further build-up in stocks — thus tying up cash resources. !

“Production cuts have continued as firms have tried to reduce inventories, and employment, opportunities have been limited,” he said. The relief will be available [against all tax due in the ! 1977-78 year, and hence will allow a refund for those businesses with early bah ance dates which have already made their second provisional tax payments. “This tax obligation neces-l sitates a build-up of business cash in the interim to enable the obligation to be met,” Mr Muldoon said. > The new policy will be implemented by an amendment to the Income lax Amendment (No. 2) Bill which has still to have its third reading. It generally would be available to manufacturers, wholesalers, and retailers, and would apply to manufacturers’ work which was in progress. The assistance would not be available for farming and agricultural businesses or for other types of business which were entitled to adopt

.standard values for trading [ stock, for construction busiInesses, for mining or quarrying concerns, or for oil companies. Certain organisations which had a special basis of taxation might also be wholly or partly excluded, Mr Muldoon said. The Deputy Leader of the Opposition (Mr Tizard) said the Opposition strongly endorsed support for the economy which he said was “in a state of collapse.” But he questioned why the Prime Minister had put out his mini-budget statement yesterday when the new measure had clearly been contemplated for two weeks. Mr Tizard said he based this belief on ’he fact that the Income Tax Amendment (No. 2) Bill had sat on the same place on the Order Paper for the last fortnight. By the rules of the House,. Mr Tizard was required to restrict his comments to matters of a non-con-troversial nature. The president oi the Associated Chambers of Commerce (Mr Reaves Harris) said that the tax relief to be granted to firms would stem the drain on their cash resources at a time when many had been faced with serious decisions. “The announcement at this time provides immediate relief to businesses which were making arrangements to meet tax obligations in March,” he said.

I Wage and salary earners [would also welcome the measures,-because businesses were having to consider shedding staff to save cash. “The important point is that the Government has dealt with a deteriorating cash situation,” said Mr Harris. “The eventual tax obligation of business remains. It has now been delayed until business has actually made the profit and is no longer (levied in anticipation.” The situation which was bleeding the cash resources of business arose from continued high levels of inflation, he said. Businesses had been liable to maintain [adequate stock levels as I ever-rising costs exceeded [their ability to generate and [retain the necessary cash. “The small man and the [ private company had a strictly limited borrowing! I base and in most cases that I has disappeared,” said Mr! [Harris. “This relief will; [assist without imposing the; [additional costs that go with; borrowing.” The airector of the Canterbury Manufacturers’ Association (Mr I- D. How-j ell) said last evening that the new measures appeared to be of assistance but his association wished to make, a check of specific companies before making any further comment. The president of the Canterbury Westland Retailers’ Association (Mr F. N. Baddeley) said that on initial

examination the new Government moves seemed a welcome relief. “Anything that decreases the liquidity problem is to be applauded, and if this step relieves liquidity in the retail sector then it is in the national interest for the retail sector is at the end of the chain and if we are not selling merchandise then everyone suffers,” he said.