The real problem is cashflow
For many businesses, unpaid GST is the symptom. The real problem is cashflow.
Inland Revenue was owed $3.3 billion in GST debt as at June 30, 2025. Photo / NZME
Over the past few years, businesses have had to contend with inflation, rising costs, higher interest rates and softer demand. Many have remained busy. Many have remained profitable on paper. But a surprising number are operating with far less cash than their turnover would suggest.
When that happens, business owners look for flexibility wherever they can find it.
Unfortunately, GST is often the first place they look. That’s understandable. But it’s also risky.
Once businesses begin using it to cover short-term funding gaps, the situation can deteriorate quickly. New GST liabilities continue to arise while historic amounts remain unpaid. Late penalties are applied and interest starts accruing. What began as a temporary solution can become a much larger problem.
What many businesses don’t realise is that there is already flexibility built into another part of the tax system.
That part is provisional tax.
Unlike GST, provisional tax is based on an estimate of expected income tax liability. By its very nature, there is uncertainty involved. Profitability fluctuates and economic conditions shift.
Successive governments have recognised this reality for decades.
That’s one reason the tax pooling framework was introduced more than 20 years ago.
Tax pooling provides flexibility and access to capital
Tax pooling was designed to help businesses manage forecasting uncertainty.
The result is a system that provides businesses with greater flexibility, reduces the cost of estimation errors and helps align tax obligations more closely with actual business performance and cashflow.
Importantly, that flexibility extends beyond getting provisional tax right. Depending on a taxpayer’s circumstances, tax pooling can allow businesses to defer payment of provisional tax, spread tax payments over time to better match cashflow, or access working capital secured against provisional tax deposits that have already been made. Businesses can achieve this flexibility without having to worry about Inland Revenue late payment penalties and generally at interest rates significantly lower than Inland Revenue’s use-of-money interest rate on overdue tax.
For businesses dealing with seasonal revenue, uneven cashflow or unexpected trading conditions, tax pooling can provide breathing room without dipping into GST or falling behind on other obligations. The key difference is that it’s built around a tax type where uncertainty is expected and recognised, rather than one where the obligation is already clear and established.
Awareness is necessary
Businesses need to understand enough to have meaningful conversations with their advisers. Photo / 123rf
Unfortunately, the businesses carrying the cashflow risk are often the least aware of the tools that exist to help manage it. When business owners don’t understand the options available to them, they can’t ask informed questions about how their tax is being managed.
A case in point is Inland Revenue’s tax pooling programme to clear historic debt. Businesses with income tax debt for 2023 and 2024 can use tax pooling to pay debt at reduced cost and without penalties, but many businesses are unaware the scheme exists.
Greater awareness doesn’t solve the problem on its own but it allows business owners to have better conversations with their accountants and to make more informed decisions.
In many ways, that’s the most important lesson from the GST debt discussion.
Businesses don’t need to become tax law experts. But they do need to understand enough to have meaningful conversations with their advisers before cashflow pressure turns into a tax problem.
Because once GST becomes working capital, the conversation is already happening too late.
If the billions of dollars of GST debt are telling us anything, it’s that many businesses are struggling to match tax payment dates with the realities of their cashflow.
Tax pooling won’t solve every cashflow problem. But it was designed to help businesses manage uncertainty around provisional tax and timing of those payments before cashflow pressure becomes a crisis.
And that’s a conversation worth having long before GST becomes the fallback option.
Because the problem isn’t that businesses are using tax as working capital. It’s that they’re using the wrong tax type.
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