Banks, fund managers, KiwiSaver providers and other financial institutions could be up for further compliance upgrades under proposals put forward in the government tax reform ‘green paper’ http://taxpolicy.ird.govt.nz/sites/default/files/2015-dd-mts-1-tax-administration.pdf published last week.
The wide-ranging reforms proffered in the ‘Making tax simpler’ paper aim to bring all New Zealanders’ tax-related obligations under a single, digital-age roof.
As part of the proposed changes, financial institutions could have to bear some costs of aligning the resident withholding tax (RWT) regime with the Pay as Your Earn (PAYE) collection system.
According to the paper, with investment income likely to increase along with the aging population it is “important to ensure that such sources of income, and associated… RWT deducted at source, are accurately and promptly recorded”
“This information should be obtained from those who are able to provide it at the lowest cost and where that information is most likely to be accurate,” the green paper says. “Although there may be some short-term costs for financial institutions and other businesses in order to provide this information, there are longer term benefits to those businesses and their customers– for example, more accurate and automatic withholding and increasing levels of compliance.”
As well as requiring technological investment across the board, the tax system reforms would tear down some of the long-standing privacy barriers between government agencies and financial institutions that can place administrative burdens on the industry.
For example, Bruce Kerr, head of Workplace Savings New Zealand, said the industry is currently lobbying government for greater information-sharing between the Department of Internal Affairs and Customs and KiwiSaver providers to ensure exiting members have met residency requirements.
When members withdraw their KiwiSaver savings on retirement (or at 65) they must sign a statutory declaration confirming they have not lived outside of New Zealand for an extended period while in the scheme. If exiting individuals have resided outside New Zealand during they may have to refund any KiwiSaver member tax credits earned during those periods.
Kerr said the current system is prone to inaccuracies and imposes administrative costs on providers.
While the new government green paper may sideline the current Workplace Savings NZ lobbying effort, Kerr said the industry would have to consider the impact of the proposals at some point.
However, he said the industry is currently busy absorbing the impact of the Financial Markets Conduct Act.
The government has scheduled a long consultation period for the tax system proposals starting with the green paper and accompanying discussion document http://taxpolicy.ird.govt.nz/sites/default/files/2015-dd-mts-2-better-digital-services.pdf ‘Providing better digital services’.
A number of further discussion documents are in the pipeline, with a RWT review next year and a social policy report (including KiwiSaver) due in 2017.
Late last month Australia went up the discussion document colour range with the publication of a white paper review of its tax system. ‘Re:think: better tax, better Australia’ includes a take on the perennial issue of trans-Tasman mutual recognition of dividend imputation.
“Mutual recognition might improve the allocation of investments between the two countries,” the white paper says. “However, it would likely impose higher revenue costs on Australia than on New Zealand and result in an overall cost to Australian GDP, due to the high levels of investment of Australian companies in New Zealand. Mutual recognition would also create additional complexity and increase administration and compliance costs.”