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Taxation policy still too vague

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Platitudes abound about what the tax system should be but the Budget contains virtually nothing about how it will be achieved, according to taxation law specialists Bruce Patterson and Grant Pearson of Duncan Cotterill.

“We are in complete agreement about what the tax policy work programme should be doing. But we see little evidence it is working – “simple and certain” is a destination we seem to be moving away from.”

Patterson and Pearson highlighted several areas they said the Government needed to address.

Fix the mess that makes up for no capital gains tax. We may not have a “capital gains tax” – but we do tax a lot of capital gains. The rules are hopelessly vague. Taxpayers have a right to know when they will be taxed, and how much.

Most of IRD is now dealing with things only loosely connected with tax. We would like to see an IRD that wants people to get their tax right. We are not impressed by recent initiatives like refusing to tell taxpayers whether IRD agree with what they propose to do. It’s no comfort that you can apply for a “binding ruling” – which will cost tens of thousands of dollars, and take a long time.

Tax policy that values certainty. For many years IRD has given little value to certainty, one of the more important issues when drafting tax legislation. Taxpayers have a right to know where they stand – it is not fair to let them find out years later. Taxpayers should be able to plan for tax consequences, or do something different.

GST rules that work. Over the years IRD has continuously on one hand been upset at paying out money without collecting it; while on the other making it difficult for taxpayers to offset GST obligations which would avoid putting IRD at risk. The Court of Appeal put IRD on notice about the issue, we still have talk and no action.

Dispute resolution. A specialist tax Ombusman, and a commitment to making sure IRD’s views about the law are clear from the outset would help taxpayers know where they stand. There needs to be a focus on speedy resolution which is fair, considering all taxpayers (including those who paid tax in similar circumstances); theoretical purity is not realistic.

Interest and penalties regime. Interest on outstanding tax should not be a penalty, the rates have consistently been set at a level designed to punish. Simple mistakes if not discovered for a time grow out of all proportion.

Patterson said New Zealand has done many things well. “But we have a very complicated tax system for a small country. And the Budget gives a clear message that change will be slow.”

For further information:

Bruce Patterson, 09 309 1948, 021 285 5595 b.patterson@DuncanCotterill.com

Grant Pearson, 04 499 3280, 021 247 3291 g.pearson@DuncanCotterill.com;