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 Foreign Minister Penny Wong 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.

Business groups had argued the earlier proposed credit card payment ban, at the start of summer, would create cashflow problems for small businesses that had to pay off a tax liability.

“This will give them the time to consult more with small business and to get it right,” Dr Chalmers told reporters in Brisbane on Friday afternoon.

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

Dr Chalmers confirmed the tax office had made the decision for a December 1 credit card payments ban in late September, days before making an announcement on October 1 on the day the Reserve Bank’s ban on surcharge fees for credit and debit card transactions came into effect.

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

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.

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.

“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.

Like the Australian Chamber of Commerce and Industry, the Opposition is arguing an inability of 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.

“Many small businesses put their BAS or tax bill on a card to manage cash flow and make payroll,” Mr Wilson said on Friday.

“Now, just before Christmas, they’re being told to find tens of thousands of dollars at a moment’s notice.

“Cashflow is king, and this government keeps crunching it, from payday super to the surcharge ban and now this.

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

But Senator Wong 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 on Friday morning.

“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.”

Environment Minister Murray Watt on Friday was also sent out to defend the December 1 ban, a day after Cabinet Secretary Andrew Charlton argued a tax office payment plan was better than paying off a tax debt by credit card.

“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,” Senator Watt told Sunrise on Friday morning.

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.”

A ban on surcharge fees, on top of what it costs to process a transaction, came into effect on October 1, following a Reserve Bank decision.

The tax office on that date announced that it would no longer accept credit card payments from December 1.

The Federal Government on Thursday said it would direct the tax office to consult more with business groups, after Labor ministers and MPs expressed concerns about the credit card payments ban.