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Making tax easier

Chapter 1 - Introduction

1.1 Many taxpayers find complying with tax obligations onerous. Often, taxpayers are concerned they haven’t got the right answer to their tax questions – even after talking to Inland Revenue. This creates uncertainty which can affect investment and innovation decisions by businesses and, ultimately, New Zealand’s prosperity.

1.2 Sometimes taxpayers can feel they work for Inland Revenue, when Inland Revenue should be working for them.

1.3 The Government’s goal is for a tax system that supports innovation and growth, and without imposing unnecessary compliance costs on taxpayers. Such a tax system would provide certainty and quick responses to taxpayers, provide value for money for the Government, and build trust and integrity in the community. It is also one that is internationally competitive. This discussion document looks at how new technology might be used to realise this goal.

1.4 The proposals in this document focus on tax being integrated into business processes so Inland Revenue can concentrate on providing services to taxpayers, rather than on back-office functions such as processing paper tax returns. The resulting increase in certainty for taxpayers, and lower compliance and administration costs, are expected to create significant benefits for both taxpayers and the Government. The proposals also envisage a new or expanded role for specialist tax businesses to reduce costs for taxpayers and Inland Revenue, and new opportunities provided by technology.

1.5 This document also raises for consideration a possible major change to the taxation of individuals by making PAYE a final tax for some individuals and proposed changes to the rules around privacy of information.

1.6 For the proposals in this document to work, change will be required from almost everybody involved in the tax system. The main proposal is to build on the increased comfort people have in working online by shifting the majority of their contacts with Inland Revenue to electronic channels.

1.7 The document also focuses on proposed changes to the PAYE system, following similar reforms to the administration of the student loan scheme. The proposed PAYE changes are an example of plans to transform the tax system. In the future, similar changes could be made to simplify other parts of the tax system.

1.8 The Government sees real merit in progressing these types of reforms and seeks feedback on the general direction of the changes described. Readers may also wish to access the online forum (www-ird.govt.nz/makingtaxeasier [site no longer available]) that has been launched in tandem with this document. The forum includes short videos which show the current position and a possible future for interactions with Inland Revenue.

Summary of proposals

1.9 The key proposals in this consultation are:

  • reducing the use of paper forms in administering the tax system and increasing online services and technology;
  • reforming the PAYE and personal tax summary process (including the possible option of making PAYE a final tax for many); and
  • a new framework for sharing appropriate information with the necessary safeguards with other government agencies.

1.10 The proposed changes will affect nearly all taxpayers.

Individuals

  • This group would self-manage most of their tax and social policy affairs through their own secure area on Inland Revenue’s website much like internet banking. The goal is to provide individuals with a faster and more certain tax system with fewer compliance costs.
  • There would be fewer errors in the PAYE system through better technology being used by employers and that technology being supported by Inland Revenue.
  • There would be a possible new approach to the taxation of individuals under which, for some, PAYE would be treated as a final tax. This approach would not apply to groups of taxpayers when the PAYE rules may give inaccurate outcomes. Taxpayers who receive additional income – for example, from rents, will still square-up their non-wage and salary income at year-end.
  • Inland Revenue would share tax information with other government agencies to reduce the need for individuals to provide the same information multiple times. Privacy issues would be an important consideration in any changes that were to be made.

Businesses, employers and the non-profit sector

  • These groups would have software which takes care of routine PAYE compliance tasks such as the need to separately file an employer monthly schedule, by automatically communicating with Inland Revenue. The software could have an option of providing information to Inland Revenue payday basis.
  • Information about an employee’s PAYE obligations would be provided by Inland Revenue directly to the employer’s payroll software, after appropriate validations, to help employers get things right.
  • Businesses, employers and the not-for-profit sector would move towards providing information electronically rather than by paper. The Government is raising for discussion whether mandating the use of electronic communication is acceptable and, if so, when.
  • Businesses and not-for-profits organisations can expect better service from Inland Revenue as resources are freed up from checking errors and processing paper as a consequence of the proposals outlined here.
  • Not-for-profit entities often have a high staff turnover, so having software which manages more of the routine processes and supports better use of other software will be of particular value.

Software developers

  • Resources would be devoted to supporting software developers so they can develop improved, more capable products for their clients. Inland Revenue would form strategic partnerships with these groups, starting with payroll businesses.
  • A key element to the proposed new capabilities is that the software will be able to deal with routine tax compliance tasks, such as providing PAYE information directly into Inland Revenue systems without the need to access them separately.
  • The Government is seeking the views of software developers on how this strategic partnership might work and how employers could be encouraged to move from paper-based systems to an electronic environment.

Privacy

  • A new framework is being proposed for sharing PAYE information collected by Inland Revenue with other government agencies, and more specifically, with the Ministry of Social Development.

Legislation required

1.11 Provided there is support for the reforms, legislative change will be required to provide more flexibility around the PAYE rules, to give Inland Revenue the ability to mandate electronic filing, to make PAYE a final tax for some and to allow Inland Revenue to share information more widely with other government agencies.

How to make a submission

1.12 The Government invites submissions on the matters raised in this discussion document. Submissions should be made by 23 July 2010 and be addressed to:

Making tax easier
C/- Deputy Commissioner, Policy
Policy Advice Division
Inland Revenue Department
PO Box 2198
Wellington 6140

Or email [email protected] with “Making tax easier” in the subject line.

1.13 Submissions should include a brief summary of major points and recommendations. They should also indicate whether it would be acceptable for Inland Revenue and Treasury officials to contact those making the submission to discuss the points raised, if required.

1.14 Submissions may be the subject of a request under the Official Information Act 1982, which may result in their publication. The withholding of particular submissions on the grounds of privacy, or for any other reason, will be determined in accordance with that Act. Those making a submission who consider there is any part of it that should properly be withheld under the Act should clearly indicate this.