Appendix 7 - The policy and legislative framework for tax administration
7.1 Changes to the way customers interact with Inland Revenue provides an opportunity to investigate the fundamental issues contained within the primary legislative vehicle for tax administration, the Tax Administration Act 1994.
7.2 In considering specific enabling legislation that would be required for any particular change as part of Inland Revenue’s business transformation programme, a policy review of key tax administration and legal issues that frame and underpin much of our tax administration system is needed.
7.3 This review will involve consideration of:
- the roles of Parliament and the Commissioner of
- Inland Revenue in tax administration;
- the role of customers and third parties in the transformed administration and the implications for current obligations and sanctions;
- principles underpinning information and secrecy; and
- the legislative structure of the Inland Revenue Acts.
7.4 This Green paper does not seek to address these issues at this time, but rather raises awareness that these issues will be considered at an early stage in the business transformation programme.
ROLES OF PARLIAMENT AND THE COMMISSIONER
Role of Parliament
7.5 Parliament both guides and constrains the role of the Commissioner of Inland Revenue, and the relationship between the Commissioner and taxpayers.
7.6 The first point to note is that the power to levy tax belongs to Parliament alone. Parliament also prescribes the tax laws on what the Commissioner and the taxpayer must do to discharge their respective tax administration and tax compliance functions.
7.7 It is accepted that legislative prescription is necessary to ensure certainty in the rules and to retain a perception by taxpayers of impartiality by the Commissioner. It is for Parliament to determine how much prescription (versus Commissioner administrative decision-making) is desirable for these purposes.
Role of the Commissioner of Inland Revenue
7.8 To a reasonable extent the role of the Commissioner is clear and adequately expressed in the Tax Administration Act. 'Care and management' is a key component of this and works well as a mechanism to reflect that the Commissioner needs to apply his/her limited resources effectively and efficiently. However, there are some areas in which the Commissioner’s role could be reviewed.
7.9 The areas for consideration include:
- how 'care and management' applies in the context of the responsibilities in the Inland Revenue Acts that are not about core tax matters; and
- whether the Commissioner should be provided with greater discretion or flexibility so that resources of both the Commissioner and taxpayer are not unduly tied up in outcomes that are impractical to apply and are inconsistent with clear policy intent.
ROLE OF TAXPAYERS AND THIRD-PARTIES
7.10 Self-assessment is a feature of the current New Zealand tax administration rules, and provides an efficient basis for tax collection. While definitions of the term may vary, self-assessment fundamentally reflects the fact that, traditionally, a taxpayer has the information and has often been in the best position to determine their own income and tax liability.
7.11 It can be assumed that taxpayers will still be in the best position to verify the accuracy and completeness of their own income or circumstances. However, it will be important to test this assumption and carefully consider the full implications of any changes concerning the roles and obligations of taxpayers. An understanding of taxpayer obligations is core to the compliance and penalties legislation. Any changes to these obligations could have implications for the penalty rules.
7.12 Self-assessment shapes the dispute resolution procedures, binding rulings regime and other key features of the current tax administration framework. A review of these policy and legislative settings needs to be considered in the context of any changes to the self-assessment framework.
INFORMATION AND SECRECY
7.13 Inland Revenue is a highly information-driven government agency and has more interactions with New Zealanders than any other agency. Information flows and analytics will be increasingly critical to its ability to perform its core functions effectively in the future. Likewise, the ability of Inland Revenue to assist in improving the efficiency and effectiveness of government more widely, by working with other agencies and organisations, is dependent on timely and accurate information.
7.14 As the Government's modernisation programme is developed, various key questions will need to be asked and considered. These include:
- Where will core information that is required come from (for example, taxpayers, employers, financial institutions, other third parties)?
- What other information might Inland Revenue need to share, and with whom would it be shared?
- To what extent should Inland Revenue collect information on behalf of other government agencies (that it can collect easily) that may not necessarily be required for tax or social policy purposes?
The secrecy rules
7.15 The effective administration of the New Zealand tax system relies on the voluntary compliance of customers. Critical to this compliance is customers having trust in Inland Revenue that their information will not be disclosed inappropriately. However, to operate the tax system efficiently, Inland Revenue sometimes needs to disclose information to third parties when it is reasonable to do so. An appropriate balance is needed when these principles are inconsistent.
7.16 Provisions protecting customer confidentiality have been in place for over 100 years. The secrecy rules in section 81 of the Tax Administration Act provide a strict rule of secrecy for Inland Revenue officers, subject to a number of specific and general exemptions.
7.17 Other pieces of legislation are relevant to information collection, use and disclosure. The Privacy Act sets out information privacy principles relating to the collection, use and disclosure of personal information, and contains specific frameworks for the sharing of personal information by government agencies.
7.18 In 2013 new rules were put into place in the Privacy Act permitting and governing 'approved information sharing agreements' (AISAs) between agencies delivering public services. A specific exception to the general secrecy rules allows Inland Revenue to share certain information under an AISA. This framework applies to 'personal information about an identifiable individual' and does not cover all taxpayer-specific information held by Inland Revenue. A broader consideration of information sharing in the cross-agency setting, and if appropriate beyond, may therefore be warranted.
Issues to consider
7.19 The ideas discussed in this Green paper aim for the more effective use of information within Inland Revenue and greater cooperation across government to, where appropriate, increase efficiencies. These goals will involve consideration of how Inland Revenue obtains, uses and releases the information it holds, and whether the current legislative framework is fit for purpose.
7.20 A number of potential inconsistencies and tensions will therefore be considered as part of on-going policy considerations, such as:
- the interplay between information sharing and tax secrecy, and any potential implications for the integrity of the tax system;
- whether non-customer-specific information (for example, statistical information or organisational information) should be treated differently from customer-specific information;
- whether information for social policy purposes (which relates to family circumstances) should be treated differently to an individual’s tax information;
- intelligence sharing and participation in cross-agency initiatives – i.e. whether Inland Revenue should have the ability to collect more data than it strictly requires if associated information is required for wider government requirements (for example, numbers of hours worked)?
- sharing of information both generally (with reference to the AISA framework), and in particular about non-individuals (i.e. those not covered by the AISA framework, such as businesses);
- potential co-location and joint service provision with other government agencies;
- the implications of greater provision of information via business accounting software and/or intermediaries;
- how best to source information that will enable Inland Revenue to identify and assist customers to get it ‘right from the start’; and
- how to manage the collection and use of large external data sets.
7.21 Inland Revenue’s functions now include administering a wide portfolio of major social policy functions (Working for Families, Student Loans, Child Support and KiwiSaver). This is reflected in the legislation, collectively known as the Inland Revenue Acts, that Inland Revenue administers. Determining the purpose of the Tax Administration Act in relation to the Inland Revenue Acts will be critical to ensuring the Tax Administration Act has a logical and coherent structure.
7.22 Specific business transformation work streams will necessitate particular changes to the Tax Administration Act. Changes to the Tax Administration Act will give rise to a significant level of legislative redrafting. As a result, certain provisions will become obsolete. A starting point for a new Tax Administration Act could be to re-order provisions, including ones that can sensibly be carried over from other Inland Revenue Acts.