Businesses quickly adopted new operating models after COVID-19 swept the globe. For example, remote working went from uncommon to fully implemented within weeks in many New Zealand organisations. Many have maintained these ﬂexible work arrangements even outside of lockdowns because they want to keep their positive eﬀects.
Similarly, the pandemic signalled a shift in tax payment behaviour, according to data from Auckland-based ﬁntech company Tax Traders. In the face of uncertainty in 2020, New Zealand companies began using tools that unlock beneﬁts traditionally hidden deep in the New Zealand tax system – including the deferral of their provisional tax and accessing a new source of working capital – as a way of preserving cash ﬂow.
Interestingly, they kept using them at the beginning of 2020, even after the first lockdowns had ended and the uncertainty of COVID-19 had lifted.
These beneﬁts are part of New Zealand’s tax pooling framework, set up by Inland Revenue in 2003 and made accessible to all New Zealand companies (no matter their size) through Tax Traders’ automation and smart tax tools.
Other beneﬁts companies can access through this smart tax technology include catching up on missed provisional tax payments, ﬁxing tax payment mistakes, and earning a return on excess provisional tax payments.
“We could see that more businesses were using tax pooling during COVID-19 last year, but we wanted to see whether the trend was becoming part of the new normal in 2021,” says Josh Taylor, co-founder of Tax Traders.
Changes in behaviour
To explore the shift in tax payment behaviour post-COVID-19, Tax Traders analysed data from its NZ$2 billion tax payment pool. It compared three types of tax payment behaviour: deferral of income tax payments, on-time payment into a tax pool and catching up on a missed income tax payment.
Not surprisingly, the data shows a dramatic increase in the deferral of tax payments via tax pooling tools during the ﬁrst COVID-19 lockdowns in 2020.
“Companies were faced with uncertainty and wanted to keep as much cash in the business as possible,” says Taylor.
Picture: Josh Taylor.
“Companies were faced with uncertainty and wanted to keep as much cash in the business as possible.”
What was more surprising was the data from this year. It showed that even though the market conditions had changed, tax pooling had become an ongoing strategy.
“Our data also shows a change in the types of taxpayers using these tools, with more SMEs now engaging with the tax pooling framework via our smart tax tools,” says Taylor.
The deferral of tax payments was coupled with a reduction in on-time payments during the peak of the pandemic last year. However, Tax Traders data also indicates a sharp increase in on-time payments from May this year.
Graph: Variance in 2021-year income tax deferrals.
“We are now seeing an increase in deferral and an increase in on-time payments,” says Taylor. “This shows that the current use of tax pooling tools is not dependent on the economy, but on a company’s ﬁnance strategy.
“Companies underwent a lot of change last year and we can see that they are now reaping the beneﬁts of ﬂexibility, not only for their workforce but also for how they choose and manage their tax payments.”