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Last week the Government released "The first in a series of government discussion documents looking
towards a better tax administration system for New Zealanders".
NZ Herald article
The document itself and forums for discussion / making submissions are at https://vision.makingtaxsimpler.ird.govt.nz/
I found the site navigation and forums a little confusing to use (resulting in my submission originally being posted in the wrong place), so
- The most important thing to know is that most of the information is hidden behind the Learn More / Tell us drop-down menu (top centerish)
- Direct link to where the pdf can be downloaded
- List of all the forums/topics
~~~
This process provides a great opportunity to step back and re-examine not only /what/ is taxed but /where/ it is taxed in the 21st century. I believe that the significant majority of modern taxes incurred probably have an electronic transaction record already associated with them, although in some cases after the fact.
Salary / wages / dividend income / social welfare entitlements - paid into the recipient's bank account electronically
GST and other sales taxes - paid into the seller's bank account either electronically or as part of an "end-of-day" cash deposit.
This suggests an option which I submit for discussion - simplifying the basic system to tax incoming transactions, assessed and immediately set aside at the point where this information is already collected: the financial institutions.
This would (ref. p9 of the green paper for a handy summary of desired outcomes to read alongside)
- move a large amount of compliance away from employers and businesses (and certain government departments responsible for delivering social policy eg Work and Income) entirely and onto the financial institutions who already have strong systems in place for calculating and applying a variety of fees and rates to different accounts.
-- Thus if desired personal accounts could be simply taxed at a different rate to business accounts to accounts set up by verified charities/non-profits. Progressive tax bands could still be applied (see next point).
- drastically reduce the need to interact electronically with individual businesses and the vagaries of individual accounting system / IT setups. Banks etc already manage secure transmission of financial data, collect IRD numbers for the purposes of correctly calculating withholding tax and would at minimum only need to
-- retrieve the correct tax rate for a given number from IRD and
-- periodically supply an aggregate transaction total for calculation of entitlements and inclusion in the entities end-of-year reconciliation (in addition to transferring the correct amounts of course).
- if an entity had an outstanding balance owing at the end of a period (income through multiple institutions perhaps) the amount could be recovered automatically over time by simply lifting the rate across all their accounts (ala tax code change)(also applies to eg student loans). Similarly refunds could be made automatically.
- further broaden the tax base, catching a greater portion of income derived from undeclared cash sales and those pesky capital gains. Hopefully this could result in a lowering of the base rates to ... compensate.
-- Particular types of transactions, declared, could no doubt be given "tax exempt" or "tax-released/refunded" status. Eg "family home" sales; payments from IRD could be automatically recognised so tax is not incurred on a tax-refund.
- be transparent to current PAYE earners, save that their bank statement could now show tax incurred and paid (added value for some).
- Obviously rules about declaring cash income (more properly "unbanked" income under this system), fringe benefits and other significant "non-monetary transfers of value" would still need to exist in some form, but these would probably require little modification to those currently in force.
---
I have more thoughts on implementation and potential pitfalls but that is sufficient to explain the premise.
~~~
A benefit which I failed to include but may be able to add later is that this would also bring the self-employed and contractors back under the same tax-collection umbrella as salary/waged employees.
I've made comments in a few other places too (all pending moderation).
towards a better tax administration system for New Zealanders".
NZ Herald article
The Government is floating the idea of businesses paying their tax on a pay-as-you-go (PAYE) basis, like individual taxpayers, in the biggest proposed shake-up of one of the building blocks of the income tax system since its introduction in 1957.
Revenue Minister Todd McClay announced the proposal to introduce a form of "business PAYE" among a raft of other possible reforms contained in a green paper seeking public submissions by May 29 ahead of a rolling maul of public consultation documents he plans to publish over the next three years to modernise and simplify the tax system, while improving the rate and accuracy of tax collection.
The document itself and forums for discussion / making submissions are at https://vision.makingtaxsimpler.ird.govt.nz/
I found the site navigation and forums a little confusing to use (resulting in my submission originally being posted in the wrong place), so
- The most important thing to know is that most of the information is hidden behind the Learn More / Tell us drop-down menu (top centerish)
- Direct link to where the pdf can be downloaded
- List of all the forums/topics
~~~
This process provides a great opportunity to step back and re-examine not only /what/ is taxed but /where/ it is taxed in the 21st century. I believe that the significant majority of modern taxes incurred probably have an electronic transaction record already associated with them, although in some cases after the fact.
Salary / wages / dividend income / social welfare entitlements - paid into the recipient's bank account electronically
GST and other sales taxes - paid into the seller's bank account either electronically or as part of an "end-of-day" cash deposit.
This suggests an option which I submit for discussion - simplifying the basic system to tax incoming transactions, assessed and immediately set aside at the point where this information is already collected: the financial institutions.
This would (ref. p9 of the green paper for a handy summary of desired outcomes to read alongside)
- move a large amount of compliance away from employers and businesses (and certain government departments responsible for delivering social policy eg Work and Income) entirely and onto the financial institutions who already have strong systems in place for calculating and applying a variety of fees and rates to different accounts.
-- Thus if desired personal accounts could be simply taxed at a different rate to business accounts to accounts set up by verified charities/non-profits. Progressive tax bands could still be applied (see next point).
- drastically reduce the need to interact electronically with individual businesses and the vagaries of individual accounting system / IT setups. Banks etc already manage secure transmission of financial data, collect IRD numbers for the purposes of correctly calculating withholding tax and would at minimum only need to
-- retrieve the correct tax rate for a given number from IRD and
-- periodically supply an aggregate transaction total for calculation of entitlements and inclusion in the entities end-of-year reconciliation (in addition to transferring the correct amounts of course).
- if an entity had an outstanding balance owing at the end of a period (income through multiple institutions perhaps) the amount could be recovered automatically over time by simply lifting the rate across all their accounts (ala tax code change)(also applies to eg student loans). Similarly refunds could be made automatically.
- further broaden the tax base, catching a greater portion of income derived from undeclared cash sales and those pesky capital gains. Hopefully this could result in a lowering of the base rates to ... compensate.
-- Particular types of transactions, declared, could no doubt be given "tax exempt" or "tax-released/refunded" status. Eg "family home" sales; payments from IRD could be automatically recognised so tax is not incurred on a tax-refund.
- be transparent to current PAYE earners, save that their bank statement could now show tax incurred and paid (added value for some).
- Obviously rules about declaring cash income (more properly "unbanked" income under this system), fringe benefits and other significant "non-monetary transfers of value" would still need to exist in some form, but these would probably require little modification to those currently in force.
---
I have more thoughts on implementation and potential pitfalls but that is sufficient to explain the premise.
~~~
A benefit which I failed to include but may be able to add later is that this would also bring the self-employed and contractors back under the same tax-collection umbrella as salary/waged employees.
I've made comments in a few other places too (all pending moderation).
