The problem isn't that businesses are using tax as working capital – it’s that they're using the wrong tax

By Josh Taylor

Recent commentary about GST debt has highlighted an uncomfortable truth about the pressures facing many New Zealand businesses.

When cashflow becomes tight, GST often becomes the buffer.

Not because business owners don't understand that it needs to be paid. Not because they're trying to avoid their obligations. But because the choice facing them can feel immediate and stark: pay wages, pay suppliers, keep the lights on or set money aside for a GST payment that isn't due until later.

The result is that GST starts acting like an unofficial overdraft.

The numbers suggest this isn't an isolated issue. Inland Revenue was owed $3.3 billion in GST debt as at 30 June 2025, representing more than one-third of its total tax and entitlement debt book.

It's easy to view that solely as a compliance problem.

However, I think that's too simplistic.

For many businesses, unpaid GST is the symptom. The real problem is cash flow.

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.

GST is not a business expense. It is not spare cash. It is tax collected on behalf of the Government. 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. 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 what a business expects its income tax liability to be. By its very nature, there is uncertainty involved. Businesses don't always know how profitable they're going to be. Trading conditions change. Margins change. Economic circumstances change.

Successive governments have recognised this reality for decades.

That's one of the reasons New Zealand introduced the legislative tax pooling framework more than 20 years ago.

Rather than forcing taxpayers to get every provisional tax estimate exactly right, tax pooling was designed to help businesses manage the uncertainty that comes with forecasting income before a financial year has ended.

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 cash flow.

Importantly, that flexibility extends beyond simply 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 in a way that better matches 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 that are 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, those options can provide breathing room without dipping into GST or falling behind on other obligations. In other words, tax pooling provides something many businesses are looking for when cash flow becomes tight: flexibility. The 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.

Most business owners have never heard of tax pooling. Yet many accountants use it every day on behalf of their clients.

That's not a criticism of accountants. But it does highlight a gap.

The businesses carrying the cash flow 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 provisional tax is being managed, what flexibility may exist within the system or whether there are alternatives that better match their cash flow.

Greater awareness doesn't replace good advice. It leads to better advice. It encourages earlier conversations, better planning and more informed decision-making.

In many ways, that's the most important lesson from the GST debt discussion.

Businesses don't need to become experts in tax law. But they do need to understand enough to have meaningful conversations with their advisers before cash flow pressure turns into a tax problem.

The best advisers don't wait until GST becomes overdue before talking about cash flow. They identify pressure points months earlier. They help clients understand upcoming tax obligations, explore their options and use the flexibility already available within the tax system.

Because once GST becomes working capital, the conversation is already happening too late.

None of this removes a business's responsibility to pay its GST. Nor should it.

GST should be ringfenced wherever possible and treated as money that belongs to the Government.

But if 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 cash flow.

Perhaps the answer is not simply telling businesses what they shouldn't do. Perhaps it's doing a better job of helping them understand the tools that already exist.

Tax pooling won't solve every cash flow problem. Nor was it designed to. But it was designed to help businesses manage uncertainty around provisional tax and timing of those payments before cash flow 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.

Josh Taylor is the co-founder of Tax Traders, New Zealand’s leading tax pooling provider.