The government recently issued a document entitled “Making Tax Simpler. A Government Green Paper on Tax Administration”. In the words of the Ministers of Finance and Revenue: “This Green Paper sets out the government’s initial thinking about a possible future for our tax administration.” The government is calling for feedback and suggestions from the public in relation to this matter, with submissions closing on 29th May 2015.
The document identifies the following three groups that will be affected by future changes:
- Employers and Businesses
- Social Policy Customers (Child Support and Working for Families)
The document also suggests that future legislative changes could be made to simplify tax calculations. This initiative seems to be primarily driven by the government’s intention to lower compliance costs for taxpayers and the government, and to improve tax collections, as well as provide high levels of predictability to taxpayers in relation to their tax obligations.
Individuals and Social Policy Customers
For Individuals and Social Policy Customers, the document focuses on having prepopulated forms and returns, automatic refunds, automatic withholdings to repay tax debts and payment calculations in real-time, all resulting in a reduction in tax debt and less need for the taxpayer to respond in person to requests to provide information directly to Inland Revenue.
Employers and Businesses
For Employers and Businesses, the document suggests that PAYE, GST, FBT, RWT and other withholding taxes, and perhaps also Provisional Tax, could all be dealt with through one form submitted at regular intervals during the year. It is suggested that this could perhaps be achieved by automatic digital data transfers from the taxpayers’ computer systems across to the Inland Revenue’s systems.
UHY Haines Norton Comment
If implemented, such a system would be similar in concept to the Australian tax system which requires businesses to prepare and file a quarterly ‘Business Activity Statement’ (BAS).
The idea in the document is that such a system would ensure that the taxes are less likely to contain calculation errors and that these taxes would be paid as you go, during the course of the year. This contrasts with the current system which places reliance on Provisional Tax and an end-of-year reconciliation (the tax return) to determine the catch-up tax amount.
One of the main intended outcomes of such a change is that Inland Revenue can reduce its bad and delinquent debts. Such a system would also see an end to the ability for start-up businesses to obtain a significant tax deferral in their first year. These tax deferrals can result in a new business failing when management has not properly provided for the firm’s tax commitments. Start-up business failures can also put well-established businesses under financial stress when a receivable goes bad.
If businesses are required to account for tax as they go (like Business PAYE) this will also mean that they will have more regular and timely financial information. This results in better decision making in all areas of the business. Although the Green Paper suggests that these possible changes to tax administration will result in cost savings, the likely outcome is cost savings for Inland Revenue and some administrative cost savings for businesses. However these will be offset by increased compliance costs in relation to additional reporting and reconciliations required for quarterly BAS-type returns. That said we believe that the benefits to businesses from having regular and timely financial information has the potential to out-way the cost of preparing that information.
If you would like to know more about the Government’s Green Paper on Tax Administration please contact Jim Martin on 839-0241 or email firstname.lastname@example.org.