Briefing for the Incoming Minister of Revenue

Last month, Inland Revenue  released its post-election briefing for the incoming Minister of Revenue.  This provides a “stock-take” of current tax policy and administration issues, and the challenges ahead.

New Zealand’s broad-based low-rate (BBLR) approach provides a coherent tax policy setting with the result that there is no “burning platform” requiring an urgent or radical shift.  Longer term there will be challenges due to New Zealand’s ageing population which will increase the demands placed on the health and social security systems.

Inland Revenue advises the Minister that the main policy challenges include:

• maintaining and enhancing tax policy within this coherent system;
• focusing on the taxation of multinational firms; and
• implementing and modernising the tax and social policy system within the Business Transformation programme. 

We have summarised some of the key points below.

The New Zealand tax system and how it compares internationally

New Zealand collects most of its income from three major tax bases – personal income tax, company income tax and GST.  One notable change in recent years is that the proportion of revenue from personal income tax has decreased while the proportion of revenue from GST and company income tax has increased.  This “switch” in tax revenue is partially attributable to the increase in GST rate from 12.5% to 15% and reductions in personal tax rates from 1 October 2010. 

Overall Inland Revenue concludes that the BBLR approach should continue and that there is no case for further company tax rate cuts presently, but it is something that will need to be kept under review, particularly if Australia moves to cut its company tax rate in the future.

Business Transformation programme

Inland Revenue sees this transformation as a huge opportunity to make tax simpler, more open and more certain.  It will enable Inland Revenue to be more agile, effective and efficient, customers to self-manage and the Government to make timely policy changes.  However, while Business Transformation is being implemented, there may be difficulties in implementing some policy changes as the current system is at capacity.

Inland Revenue advises that it is finalising a consultation document on secure digital services for consultation early in 2015.  It is developing a consultation document on GST and PAYE collection of information.  In addition it is also progressing “tax administration for the 21st century” policy work in a series of discussion documents to be released later in 2015 and subsequent years.   It is expected that the Business Transformation project will take 8 – 10 years and could cost well in excess of $1 billion.

The taxation of multinational firms and BEPS

Inland Revenue acknowledges that, compared with other countries, New Zealand has fairly robust international tax rules that make it less vulnerable to base erosion and profit sharing (BEPS). However, some projects on the tax policy work programme are investigating domestic law changes that would help to combat BEPS.

Inland Revenue comments that BEPS should not be seen as anti-business. Its goal is to make company taxes more even and transparent in their application across companies and countries. It is not in the interests of New Zealand businesses and individual taxpayers if multinational companies are able to avoid paying their fair share of taxes in New Zealand or elsewhere.

The purchase of goods and services from abroad escaping the GST that would be applied on domestic purchases is seen as a growing problem.  Inland Revenue comments that the most productive way forward is likely to be to work with the OECD in this area. The OECD is currently examining a way of countries cooperating to levy GST on imported services, including intangibles, and is likely to recommend the GST registration of non-resident suppliers as the best solution – an option that could also be extended to low-value goods.

Conclusion

Inland Revenue will soon report to the Ministers of Revenue and Finance on possible measures for the tax policy work programme early next year. 

A copy of the Inland Revenue’s briefing can be found by clicking here

December 2014 Tax Alert contents

• Inland Revenue’s 2014 Annual Report: some reading between the lines
• Briefing for the Incoming Minister of Revenue
• New Zealand Revenue Minister releases update on taxation of multinationals
• The Commissioner’s power of reconstruction: No day at the beach for taxpayers
• What are the tax compliance issues that Inland Revenue is focusing on?
• VAT on Supplies of Services to the EU