The tax office will now be accepting credit card payments until June 2027 after Treasurer Jim Chalmers caved in to pressure from the Opposition, business groups and his own divided Labor ministers and delayed a ban due to come into effect in seven weeks’ time.

Hours after senior Cabinet ministers Penny Wong and Murray Watt said the Federal Government was powerless to override an independent government agency, Dr Chalmers said extra funding would be allocated to the Australian Taxation Office to extend the start of the ban from December 1 to the end of this financial year.

“Now, we try not to interfere with the RBA or the ATO when they go about designing and implementing this surcharge ban but it’s really important that we have stepped in today to make it possible for the ATO to continue to take credit card payments until the end of the financial year,” Dr Chalmers told reporters in Brisbane on Friday afternoon.

The tax office is now extending its consultation after employer groups argued a credit card payment ban would create cashflow problems for small businesses that had to pay off a tax liability, which could potentially see customers hit with higher prices.

The latest backdown, on a tax office policy announced little more than a week ago, marks Labor’s fifth policy reversal in just a year from superannuation to Budget taxes on estate planning, tech start-ups and widows inheriting an investment property.

“This will give them the time to consult more with small business and to get it right,” Dr Chalmers said.

“This recognises the really important contribution that small businesses make to our local communities and to our economy more broadly.

“We’ve stepped in here to provide the necessary funding to ensure that the ATO can continue to take credit card payments until the end of the financial year.

“We take very seriously the feedback that the ATO and the Government have received when it comes to implementing this surcharge ban.”

Dr Chalmers confirmed the tax office had made the decision for a December 1 credit card payments ban in late September, even though the Reserve Bank of Australia announced its upcoming surcharge fee ban at the end of March with six months’ notice.

An ATO announcement was made on October 1 on the day the RBA’s ban on surcharge fees for credit and debit card transactions came into effect, meaning businesses accepting these payments would be unable to charge customers for costs unrelated to processing the transaction.

The tax office was reluctant to absorb extra costs, so it announced a ban on credit card payments.

“Obviously, we were aware before then that they were grappling with this issue,” Dr Chalmers said.

“We insisted, once we were aware, that these changes were being proposed, we insisted on a transition period, which initially was from the beginning of October until the end of November and today we are substantially extending that period so the ATO has the opportunity and time to consult more, particularly with small business.”

The intervention was made a day after Housing Minister Clare O’Neil joined Small Business Minister Anne Aly in calling for the ATO’s December 1 credit card payment ban to be reconsidered.

Despite an imminent announcement Senator Wong, the Foreign Minister, on Friday morning argued the Federal Government couldn’t interfere with the independence of the tax office.

“They are independent. Governments can’t direct the tax office to implement tax in a certain way,” she told Nine’s Today show.

“What I’d like to see is this resolved between the ATO and small business representatives.

“That’s the negotiation, that’s the engagement, the consultation that we want to see.”

Senator Watt, the Environment Minister, on Friday morning was also sent out to defend the December 1 ban.

“I mean, this is an independent decision from the ATO. And when they made clear that they intended to proceed with this, we insisted on them having a good transition plan with the business community and to consult with the business community about that,” he told Sunrise.

Opposition Leader Angus Taylor on Friday called for Prime Minister Anthony Albanese to simply have the credit card payment ban overturned rather than extended.

“We don’t need consultation on this. We don’t need consultation on this. We need change,” he told reporters in Brisbane.

“You know, this is the problem. This government sits around and does nothing. The real problem with this Prime Minister and the Treasurer and all of his ministers is they never take responsibility.

“It would say to the tax office that you’ve got to accept credit card payments. It would overturn the decision that’s been made. It’s pretty simple. It’s not going to be a complicated piece of legislation. You know, the Government, if they want to do it, can do it today - and they should.”

The Council of Small Business Organisations wants any kind of credit card ban to be scrapped, calling on the tax office to simply absorb a surcharge fee ban.

“The ban on surcharges needs to be reconsidered and certainly the ATO’s decision, let’s not just delay it to June ‘27, allow them to keep paying that way,” chairman Matthew Addison told ABC News.

Shadow treasurer Tim Wilson on Friday morning had called on Dr Chalmers to override the tax office upcoming ban coming into effect on December 1, arguing an inability for businesses to be able to pay a tax liability by credit card would leave them with cashflow problems after they had filed a business activity statement.

“Treasurer, Jim Chalmers, needs to front up like a shop owner when times are tough, listen to small business and overturn his ATO and their assault on small business cash flow and credit card payment ban,” Mr Wilson said.

“Many small businesses put their BAS or tax bill on a card to manage cash flow and make payroll.

“Jim Chalmers needs to front up, show some leadership and overturn the ATO’s credit card ban.”

The Australian Chamber of Commerce and Industry’s chief executive Andrew McKellar on Friday stepped up its call for the Federal Government to override the ATO.

“This credit card ban is hurting small businesses. If the Australian Taxation Office can’t find its way out of the maze it has created, then it’s time for political leadership to step in and fix this,” he said.

“This policy is hypocritical and entrenches a double standard. Small business is being asked to cop the surcharge ban while the ATO refuses to do the same.

“We are calling on government to provide a clear solution. We need a pathway forward that gives small business a break; they need some breathing space.”

Unless the credit card payment ban is scrapped entirely, Australians owing a tax debt from July next year would be required to pay either via a third-party online transfer if they were unable to pay from bank savings.

“The ATO encourages taxpayers considering these options to carefully consider relevant fees, charges and processing timeframes,” the tax office said on Friday.

“The ATO also encourages taxpayers to remain vigilant against scams and verify the credentials of any third-party providers before sharing information or making payments.”

The latest delay to the ATO’s credit card payment ban marks Labor’s fifth backdown during the past year including taxing unrealised super gains on balances above $3 million, along with dumped Budget plans to apply a capital gains tax to start-ups, tax discretionary testamentary trusts and introduce a widow’s tax on investment properties.