New Zealand: Government seeks public consultation on simplifying and modernising tax administration system
The New Zealand Government has released two consultation documents seeking submissions on the simplification and modernisation of New Zealand's tax administration system. The documents are intended to be the first in a series of consultation documents to be released over the next two years. The first document, 'Making tax simpler – a government green paper on tax administration' introduces the overall direction of the tax administration modernisation programme and seeks feedback on that direction. The second document, 'Better digital services', outlines proposals for greater use of electronic and online processes allowing faster, more accurate, more convenient interactions with New Zealand Inland Revenue.
The current tax administration system (which is the product of a series of incremental changes) has been criticised for imposing high compliance costs, being difficult to fully comply with and for failing to take advantage of technological advances. For example, the paper-based system by which salary and wage earners pay tax has not been fundamentally reviewed since its introduction in 1957.
Potential changes outlined in the documents include:
options for simplifying the calculation and payment of provisional tax (the regime by which businesses make instalment payments of their expected income tax liabilities) and the application of the use-of-money-interest and late payment penalty regimes;
streamlining the collection of PAYE (the pay-as-you-earn regime by which tax is collected on salary, wages and other similar types of income), GST, withholding taxes and related information by integrating these obligations into business processes (for example payroll and accounting software);
providing online income tax statements already filled out with an individual's income details (pre-populating) with the intention that for the majority of individuals all that would be required would be to check and confirm income details, or to correct them. This in turn may result in individual taxpayers (most of whom now have all their income tax collected at source and are not required to file tax returns) once again being required to file returns; and
using new technology to implement variable withholding tax rates so that overpayments and underpayments of tax can be addressed automatically and more promptly, as opposed to waiting for the taxpayer to file its return, which will be many months after an initial overpayment or underpayment arises.
To reduce the costs of implementation and continuing compliance, the government will need to work closely with taxpayers (in particular banks and other financial institutions) to develop software that works well with existing business practices. The green paper on tax administration highlights the need to avoid the trap of shifting back-office burdens previously borne by Inland Revenue on to taxpayers.
Finally, one of the government's objectives for the proposed changes is to use information more effectively within Inland Revenue and to facilitate greater cooperation and information sharing across government agencies. While greater sharing of information between government agencies may result in efficiencies for the government and taxpayers, there are concerns about the possible privacy implications. Inland Revenue has the most intrusive information-gathering powers of any government agency. Those powers have traditionally been balanced by Inland Revenue's obligation to use taxpayer information only for the purposes of its tax administration responsibilities. Sharing, even with other government agencies (whose own information-gathering powers are generally less comprehensive), has been permitted only in exceptional and well-defined circumstances. Any relaxation of the restrictions on the use of taxpayer information will need to be carefully considered, especially in the case of information that Inland Revenue has obtained by compulsion of law.
The government intends to seek further submissions on the proposals put forward in the green paper by releasing specific consultation documents over the next two years. Documents seeking to develop a tax administration framework fit for the 21st century and addressing employment income are expected to be released later this year. Further documents addressing the taxation of individuals and businesses are expected to be released later this year and throughout 2016.
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