Monday, April 29, 2019
Chartered Accountants Australia and New Zealand (CA ANZ) has given a guarded welcome to the New Zealand Government's response to the recommendations of the Tax Working Group.
The association said the Government deserves praise for listening to feedback from the stakeholders, on the challenges of the wide-ranging tax reforms proposed by the TWG and on the importance of maintaining the integrity and simplicity of the tax system.
On April 17, 2019, New Zealand's Prime Minister, Jacinda Ardern, announced that the Government intends to not adopt the Tax Working Group's (TWG's) recommendation on creating a broad capital gains tax. In February 2019, the TWG recommended that more income from capital gains should be taxed from the sale of residential rental properties. A majority of its members recommended going further, and broadening that approach to include all land and buildings, business assets, intangible property and shares. She said that there wasn't enough support across parties to the coalition.
Instead, the Government endorsed reforms in other areas of the tax system, including considering a tax on vacant land, and on various compliance and enforcement initiatives.
"As was acknowledged at the start of the Tax Working Group exercise, New Zealand has by international standards a largely simple and efficient tax system," said CA ANZ Tax Leader, John Cuthbertson. "Today's announcement reflects that, and it was good to see the Prime Minister emphasizing the need to maintain the simplicity of our tax system and minimizing the risk of creating distortions."
Cuthbertson praised the working group for giving the tax community the opportunity to explore the detailed design of a range of tax issues including measures to support small businesses, the integrity and administration of the tax system such as dealing with multinationals, and, finally, the viability of a capital gains tax.
"A lot of the groundwork has been laid for the future," he said. However, he noted that many important recommendations targeting small business, start-ups, and compliance costs have been pushed on to Inland Revenue's tax policy work program.
CA ANZ said it is disappointed that the recommendation to establish a taxpayer advocate service to assist with the resolution of tax disputes will not be progressed. "We believe this feature would have made a significant contribution to enhance taxpayers' trust in the tax system," Cuthbertson said.
CA ANZ said key long-term issues facing New Zealand's tax system will require more work, in particular the reliance on a small number of individual taxpayers as the largest single source of the country's tax revenue. Individual income tax is New Zealand's highest revenue earner with more than 40 percent of the total tax take, it noted.
"It is crucial that we continue to think about the sustainability and future of our tax base, and the risks posed by a shrinking income tax pool due to advances in technology, the changing work landscape and aging population. Today's announcements do not explicitly address these concerns," it said.