Together, RWT, NRWT, PIE tax and AIL are known as withholding taxes and ensure that:
- taxpayers don’t have to pay tax on investment income as one lump sum at the end of the tax year (or as part of their provisional tax payments);
- one person or organisation is responsible for meeting the tax obligation rather than many, i.e. one payer deducts and pays tax for everyone it pays income to; and
- people who don’t declare their income still pay tax.
Withholding tax from income is a very efficient method of collection. For example, in the 2014 tax year, it cost Inland Revenue $0.49 per $100 of withholding tax collected, compared with $1.90 per $100 to collect tax on income where tax wasn’t withheld.