It will certainly be interesting to see if they go as far as recommending compelling digital multinationals to collect withholding tax on the Government's behalf, writes Paul Drum. Photo / AP
It will certainly be interesting to see if they go as far as recommending compelling digital multinationals to collect withholding tax on the Government's behalf, writes Paul Drum. Photo / AP
COMMENT:
The Tax Working Group has had its sleeves rolled up for some months now, considering the future of tax in New Zealand.
There is no doubt this review has sparked a national conversation, with the working group receiving some 6,700 submissions, nearly 16,000 respondents to their online poll, and nearly 29 million impressions and 35,000 clicks on its digital advertising.
Further, it has extensively engaged with business and community groups in roadshows across the nation.
There has also been a strong commitment to ensuring the process is as transparent as possible, with the working group releasing tranches of discussion papers for public consideration in May, July and August this year.
These documents provide not only a valuable insight into the issues under consideration but also valuable insight into where the TWG may land in their interim report which is due to Government this month.
Many of the ideas submitted by citizens will undoubtedly be ruled out. Some may be accepted – and some will be put back to the market for further consideration or consultation.
This may be frustrating to those who like quick decisions and want to see some action rather than more reviews, but I think it's better to take the time necessary to help ensure the best possible outcomes.
That is not to say nothing is happening in New Zealand's tax policy space. For example, readers will no doubt note that in June this year the government announced a tax on most international visitors to fund infrastructure and ease pressure New Zealand's booming tourist sector.
Applying from 2019, this announcement is also in accord with one of the many recommendations CPA Australia made in its initial submission to the working group.
In terms of what to expect in the soon-to-be-delivered interim report, I'm predicting a range of recommendations around the cash economy and a broader withholding regime for contractors.
These measures will be designed to capture the non-withholding taxpayers in the building and construction sector, courier drivers and workers in the gig economy.
The working group is also highly likely to recommend increased reporting obligations for what we call the sharing economy, where AirBnB is a major actor.
We're picking a recommended reporting regime whereby Inland Revenue can acquire detailed information about New Zealand's AirBnB hosts to ensure all income is appropriately taxed.
It will certainly be interesting to see if they go as far as recommending compelling these digital multinationals have to collect withholding tax on the Government's behalf.
In June this year the government announced a tax on most international visitors to fund infrastructure and ease pressure New Zealand's booming tourist sector. Photo / supplied
But a close reading of the tea leaves suggests the highly politicised and important issue of the capital gains tax (CGT) is probably to be parked for further consultation and input.
This is not to say a firm recommendation will not materialise upon publication of the final report – I think it will and is likely to be broad-based, with an exclusion for the family home – but it will require significant political consideration before being put to the public.
We may also see some moves on taxing the digital economy, including the imposition of GST on low-value imports but again, these might be measures needing further interrogation and input from the business community ahead of the final report.
It may be famous last words but I do not expect any change to the dividend imputation regime, reduction to the corporate tax rate, or any major changes to GST.
In our submission to the working group, we argued for reduced tax rate for small businesses but I'm not expecting adoption of this growth-focussed measure.
While the working group interim report is of itself an important milestone in this ongoing inquiry, there is still quite a way to go before we can expect to see any significant change to the tax system.
The working group's final report is due to Government in the first quarter of 2019. And we expect it is this report that will inform tax policy options for all parties on what should or should not be taken to the next general election in 2020.
