Changes with the Tax SystemComplying with tax obligations can be a struggle for small businesses, as it puts a strain on their financial resources. Unlike their bigger, more established counterparts, business owners of small companies do not have the advantage of making as much profit at the same pace.

Making changes to the tax system, therefore, is one way the government is helping create more favourable conditions for small business owners. How, exactly, is tax reform changing the landscape for tax-paying businesses, though?

The Issue with Provisional Tax

Provisional tax is mandatory for all business owners who had more than the amount of $2500 in their previous tax payment. The tax is a way for entrepreneurs to pay for their estimated profit for the upcoming year in three instalments.

While provisional tax does reduce the risk of failed businesses going underwater due to tax payments, it is still difficult for business owners to forecast their profits in advance. Paying for the tax could affect cash flow and push some businesses over the edge. Moreover, some businesses still need to contend with interest rate charges and possible penalties on late payments, prompting experts to say that provisional tax has sent private individuals and business owners into a spiral of despair.

New Tax Reform Allows Small Businesses to Pay Tax on a PAYE Basis

The tax reform, on the other hand, addresses the issue by giving small businesses with a turnover of below $5 million the option to pay their tax on a Pay as You Earn basis. Accurately recording financial transactions are therefore a necessity and it sheds light on the importance of tax accounting services to overcome errors and speed up the taxpaying process.

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Furthermore, the business tax will eliminate the 9.2% interest charge on tax underpayments, so long as business owners pay their dues on time. The government also scrapped the 1% monthly penalty for those who underestimate their future profits.

The new tax reform has been a welcome change, especially for small business owners. Giving small businesses the option to pay as they earn will make it easier for them to grow and thrive.