Making tax simpler: Speech to Trans-Tasman Business Circle
It is my pleasure to be with you here today to unveil the next important stage of how the Government is making tax simpler for business.
Over the last few years we have taken the first steps in what is a very significant journey towards a simpler tax system for New Zealand.
While our tax system is among the best in the world, and is internationally recognised for that, I know that we can do better. The reality is that as the world becomes more and more connected, and more digital, we need to keep looking at what we can do to improve.
Our aim is to make the tax system simpler, more certain and more open for individuals and businesses, and for Government.
We want a transformed tax system that delivers significant benefits for our country and supports Government’s goal to building a more competitive and productive economy.
As in all areas of government, we need to take advantage of the shift to digital, look at how we provide customer-focused services, and how we make things easy for people.
Let me be clear – I know Inland Revenue is doing a great job with the systems it has. Businesses and individuals tell me that. I’ve seen very positive feedback, and more and more people are using the new, digital services that Inland Revenue provides.
But businesses are also telling me that there’s still too much effort required to comply with the requirements of the tax system that it’s too difficult to know if they are doing the right thing, and that it can be hard to find the information they need.
In part that’s because Inland Revenue is limited by some of its systems, and that’s why these are being replaced. But it’s also because we need policy to catch up with a digital world, and because Inland Revenue, like all Government agencies, needs to think differently about the services it provides.
I am pleased to say that we are making great progress in all these areas.
Inland Revenue has introduced a number of digital channels in recent years and customers are using these in large numbers.
94 per cent of customers get their refunds digitally and 84 per cent make payments digitally.
Nearly 60 per cent file their tax returns digitally, via the MyIR website, e-filing through tax agents, and from last year Inland Revenue’s first mobile app.
More than 1.8 million people have voice verification with Inland Revenue.
Inland Revenue has cut down on paper by sending information electronically directly to people’s secure myIR accounts. Since April this year more than two million letters, statements and notices have gone out this way.
Shared initiatives with other departments are getting us closer to telling government only once: like registering for PAYE through the Companies Office; getting your baby’s IRD number when you register the birth - 93 per cent are now registered - and sharing information between IR and MSD so people get, or pay, the right amount.
We have also embarked on the policy changes we need, with the introduction of the first Business Transformation Bill earlier this year, and consultation with the public on the overall future of the tax system.
This will bring changes as simple as allowing electronic signatures to be accepted rather than requiring paper-based signatures, which are now woefully out of date.
We said the Transformation of tax administration would use a mixture of New Zealand and international expertise – and where a New Zealand company could do the work I would expect they would be given the opportunity to.
We have been true to this.
To date, Business Transformation is under budget and ahead of schedule.
Some 67 per cent of the Business Transformation spend to date has gone to New Zealand companies, supporting businesses and creating jobs.
We also said that where the private sector can provide capacity we would use them rather than Inland Revenue – we would borrow their expertise rather than building systems from scratch ourselves.
I have encouraged Inland Revenue to work closely with industry, including accounting and payroll providers.
Today I am happy to announce that the first fruits of this work comes next month when a sample of Xero and MYOB customers will be able to file their GST returns straight from their accounting software to Inland Revenue, rather than having to file a separate return.
This may sound simple, but it has very practical benefits for businesses, cutting the amount of time it takes to meet tax obligations, and is an early step in integrating businesses and tax processes.
From March next year this will be rolled out to all Xero and MYOB customers, and in time it will be extended to all other software providers to offer their customers.
This will be followed by building PAYE processes into payroll software, however this is subject to policy change and public feedback.
All this is just the tip of the iceberg however.
Inland Revenue has put considerable effort into making sure they get this change right – because New Zealand can’t afford to get this wrong. There has been careful planning to maximise the chances of success and I’m pleased to say that all the indications are positive.
I’m delighted to say that since the original projections, it looks like this work will take less time, cost us less, and deliver more benefits.
The programme is now planned to be completed within seven years instead of the ten years originally indicated.
Further, I fully expect the project to come in well below the highest projection of $1.9 billion – and it is now likely that the new Crown funding required will be under $1 billion.
You might well ask how this is possible.
In part this is because of the selection of a core tax system that’s built for tax and is already operating at other tax authorities and it will need less customisation.
It’s also because of the commercial expertise that Inland Revenue has brought on board to help build the new system – people and companies who have done this work before, both in New Zealand and internationally.
These changes are about much more than changing technology and systems. This is about unlocking real business benefits, while exploiting the advantages of new technology to improve service.
Policy plays a major role in simplifying the future revenue system and that’s what you’re here to hear more about today.
In March, we issued the first two proposals on the overall direction of the tax modernisation programme we are heading in, and the intention to introduce more digital services.
Then in June I introduced the first of a series of bills which will contain proposed legislative changes to enable the transition to a simpler, more convenient tax system.
Feedback received from the first round of consultation has been encouraging and gives me confidence that we’re on the right track. Today I am releasing that feedback so that you can see how earlier responses have informed the proposals we are releasing today.
A large proportion of that feedback focused on business tax ideas.
The comments align very much with the Government’s thinking on this matter.
We are very conscious of the significant impact tax can have for business, so we need to make sure we get our proposals for change right the first time.
There are lots of issues to consider but it is an opportunity to make a profound difference.
Today, it gives me great pleasure to launch the next two discussion documents in the Making Tax Simpler series:
Better administration of PAYE and GST
Towards a new Tax Administration Act
I would like to summarise the policy changes we are consulting on:
Almost all businesses need to account for GST. And if you’re also an employer, then PAYE is part of your tax obligations.
The focus of the first public consultation we are launching today is on making it easier for businesses to manage their PAYE and GST obligations and improving the timeliness and quality of PAYE information by using business software.
The PAYE proposals are intended to minimise compliance costs by streamlining some processes and eliminating others.
Other than paying tax, taxpayers’ other interaction with the tax system is providing information to Inland Revenue. This imposes compliance costs.
We’re considering a philosophical change by getting rid of the notion of forcing taxpayers to conform to a process.
We asked ourselves, why not allow employers to carry out their PAYE obligations to Inland Revenue at the time the business process occurs, for example, when they pay their employees rather than at a separate time required by IRD?
That would have the advantage of fitting tax obligations in with normal business processes in the same way as with the trial I mentioned earlier allowing GST filers to file their GST returns online from their accounting software straight to Inland Revenue.
If Inland Revenue was advised of new employees when they are first added to the payroll system employers could receive notification from Inland Revenue of the deductions to make before the employer started to pay them, preventing subsequent re-work.
If employers provide PAYE information to Inland Revenue at the time the business process occurred, Inland Revenue could use that more timely information to improve the accuracy of deductions which would improve individuals’ access to their social policy entitlements.
We are seeking feedback on three different implementation options for the proposed switch from monthly filing of PAYE information to filing at the time the business process occurs.
All the options recognise that some employers are unable to access the digital services that would facilitate this switch and an exemption process would exist for them.
I said before that digital technology was the key to unlocking greater convenience and simplification in our tax system. It also reduces the cost of administering the system.
Employers now make much more use of digital technology than they did in 1999 when the threshold for filing PAYE information electronically was introduced.
We are therefore also seeking feedback on a proposal that would lower this threshold from $100,000 a year of PAYE and employers’ superannuation contribution tax to $50,000.
Continuing with the theme of digital filing, we’re proposing that GST-registered persons would be able to submit their GST returns to Inland Revenue directly from accounting software, rather than filing a GST return as a separate process.
The result should be businesses across New Zealand who will have more time to focus on growing their business, employing New Zealanders, and supporting our economy.
We will assess feedback on this proposal along with the results of the pilot I talked about earlier and decide how to proceed.
Economic growth is a fragile thing which must be nurtured carefully and the Government is very much aware of the issue of compliance costs. We’re careful about imposing requirements on any business.
So adopting the new GST services will be optional for GST-registered persons, however submitters are asked for feedback on whether there should be a threshold above which GST-registered persons should be required to submit their GST returns electronically (through existing electronic channels or new digital services).
The second consultation I am releasing today looks at our current tax administration system set out in the Tax Administration Act, and how we might make it simpler for everyone and more flexible for the future.
Much of how Inland Revenue administers the tax rules is governed by this Act which was enacted in 1994.
It hasn’t been comprehensively reviewed since then. In the meantime, there have been some big changes in the social and economic environments including the shift to digital and online communication. There is also an increasing demand for improved public services.
This consultation covers three key areas of tax administration where changes would support simplification.
First, it looks at the role of the Commissioner of Inland Revenue, to ensure that her resources and those of taxpayers are used most efficiently.
It does this by considering the Commissioner’s dual functions as a state sector chief executive and as the chief administrator of the tax system.
While our tax administration has a solid foundation, the document also considers the Commissioner’s care and management role and the extent to which it could be made a little more flexible.
The document also considers what the right balance should be between keeping taxpayer information secret and using that information more efficiently to provide better services for New Zealanders.
It recognises the need for taxpayer secrecy while considering how this should apply in aiming for an improved public service.
And it looks at other questions we need to consider as part of our wider vision to improve our tax administration system.
This includes how pre-population of tax returns may work in our self-assessment tax system, self-assessment being a cornerstone to good tax administration that we expect to maintain.
Our tax system relies on voluntary compliance. It’s a good, efficient way to ensure that government continues to have the revenue it needs to provide essential services for New Zealanders.
The proposals contained in the consultation I’m launching today will, together with future consultation rounds, help to modernise and simplify our tax administration to make it work better for taxpayers, and better for businesses.
I encourage you to digest the proposals and what they will mean for your businesses and for your clients, for your families.