Budget 2016 transforming NZ’s tax system

Latest announcements another step in the Inland Revenue Department’s (IRD) business transformation programme.

Even before the New Zealand Budget announcements were formally released last month, a package of initiatives was being developed to simplify business tax to the tune of as much as NZD$187 million in expected savings:

  • Simplification of calculation and payment of provisional tax, and a narrowing down of the circumstances where use of money interest needs to be paid on a short-paid provisional tax.
  • Extended withholding tax rules, requiring labour-hire firms to withhold tax from contractors.
  • Extra flexibility in withholding tax rules to allow contractors to modify their withholding tax rate to a rate which suits their tax obligations.
  • Increasing $500 threshold to $1,000 for taxpayers to self-correct errors.
  • Removal of requirement to renew resident withholding tax (RWT) certificates of exemption annually.
  • Abolishing incremental late payment penalties for certain tax types.
  • Introducing more information sharing with credit rating agencies and the Companies Office.
  • Increasing threshold to allow more taxpayers to pay fringe benefit tax (FBT) annually rather than quarterly.
  • Simplifying FBT for close companies that provide motor vehicles to shareholder-employees.
  • Simplifying businesses claiming deductions for use of motor vehicles and home office space.

Essential to these developments is a push for both IRD and NZ taxpayers to make more effective use of technology to streamline tax – IRD have been allocated additional funds for operational and capital spending to build a new tax administration system over the next four years. It is expected that this initiative will generate NZD$284 million in savings for IRD plus an additional NZD$280 million in taxpayer revenue due to increased compliance.

Alliott NZ were early adopters of technology in our work processes, so we’re excited about working with both the IRD and our clients to integrate the new requirements smoothly. So far we’ve seen the IRD working with Xero and other cloud accounting providers to pre-populate GST return data with business sale and purchase figures.

Related reading: New systems live at Alliotts. How you benefit

The multinational tax avoidance debate

Technology is always exciting but there’ll need to be balance between automation and taxpayer education in order to ensure data remains accurate. Case in point is with respect to New Zealand’s more complex tax anti-avoidance rules, which are not exclusive to multinational concerns, but do focus on base erosion and profit shifting (BEPS) by large multinational corporations.

Indeed, New Zealand is taking more incremental steps to address BEPS as compared with Australia, who introduced a diverted profits tax, in light of a strong economy and the contribution business has made to attain that position. With New Zealand experiencing a higher corporate tax take than most other OECD nations, it would seem that large corporates in New Zealand are paying their way for now[1].

NZ Business Growth Agenda

The government’s Business Growth Agenda has a target of increasing New Zealand exports to 40% of GDP – essentially generating NZD$160 to NZD$200 billion of new productive capital.

To achieve this, New Zealand needs to continue to court and attract doing business in this country and foreign investment whilst remaining a competitive destination for entrepreneurs, including how we apply tax measures to foreign business and our own exporters. If we can tread that fine line, then the benefits for employment, corporate profit levels and, ultimately, tax collection will continue to contribute to New Zealand’s robust economy.

Budget 2016 provides an opportunity to consider this debate further and how the evolution of our tax law impacts New Zealand’s economic welfare. Can the Budget announcements help us to be more black and white to suit the proposed increase in use of technology, or will the IRD’s business transformation programme throw up a cloud whilst we feel our way through the new requirements?

Alliott NZ is a member of Alliott Group international alliance. We support business on a local, regional and international basis offering global business solutions and will happily align with international firms on any assignment when it comes to doing business in New Zealand. Call us on +64 9 520 9200.

[1] 2015 OECD Revenue Statistics