Provisional tax detailed

Press, 23 January 1988, Page 29

Provisional tax detailed

By

OLIVER RIDDELL

in Wellington

Details of the new rules for the provisional tax system, announced as part of the economic package in December, have been set out by the Government. The December statement announced reforms to the provisional tax system to be implemented from the 1989 income year. The reforms are intended to reduce substantially the amount of tax deferral that has been occurring. The Minister of Finance, Mr Douglas, said yesterday the new rules would not apply until

after the new rates of company and personal tax had been determined.

Companies with early balance data, which were required to pay their first instalment of 1989 provisional tax early in 1988, should continue to use the present provisional tax system and tax rates until the new rates had been announced. He said the new provisional tax rates would apply to instalments of provisional tax for the 1989 income years which fell due after the new tax rates had been announced.

Most provisional taxpayers would not be af-

fected by the delay in implementing the new rules. Most used a March balance date and' would not make their first instalment of 1989 provisional tax until July 7, 1988. “I expect the new tax rates to be decided and announced well before that date,” Mr Douglas said. The new provisional tax regime gave taxpayer's with non-source-deducted income in the $3OO to $lO,OOO range the option of using the previous year’s income plus 10 per cent to calculate provisional tax or using an estimate of income for the current year.

Taxpayers using estimated income to calculate their provisional tax liabilities would be subject to penalties on underpayments, but received compensation for overpayments, he said. The penalties provided for under the new rules would not apply to instalments of provisional tax due before the new rates of tax were known. Similarly, Mr Douglas said, taxpayers choosing to use the previous year’s income to calculate provisional tax would not be required to add the 10 per cent margin until after the new tax rates were made available.