Govt ready to slash tax compliance penalties

By Brian Fallow

WELLINGTON - Halving the monthly penalty for late payment of tax is one of the measures the Government has foreshadowed as it moves to make tax compliance less costly for business.

It is adopting the recommendation of the committee of experts on tax compliance headed by Sir Ian MacKay, which reported last December.

The committee considered the present regime, which could impose an overall impost of 50 per cent over a 12 month period including use-of-money interest payments, as being too punitive.

It recommended that the immediate 5 per cent penalty for late payment should not apply to taxpayers who failed to pay on time but corrected the error within a few days, and that the incremental late payment penalty of 2 per cent a month should be reduced to 1 per cent.

In the year to June 1999 $111 million in late payment penalties were imposed.

Treasurer Bill English said the Government also planned to clarify the law relating to instalment arrangements.

Currently the Tax Administration Act allows the Commissioner of Inland Revenue in certain circumstance to enter into instalment arrangements when a taxpayer is in financial difficulty.

But the provisions only apply to income tax and fringe benefit tax, and not for example to GST and PAYE, where different rules apply.

Mr English said the Government planned to make the law clearer and more consistent.

"Furthermore, partial failure to comply with the instalment arrangement will not result in a disproportionate penalty."

At present, if taxpayers default in any way on their payments during the term of an arrangement, the whole arrangement is cancelled and all the accumulated penalties that would otherwise have been cancelled are reinstated. Taxpayers lose any benefit from the period for which they complied with the arrangement.

It is also proposed to raise the threshold at which the Minister of Finance's approval is required for instalments arrangements, from $50,000 to $100,000.

As at April 30, there were over 53,000 instalment arrangements in effect.

At this stage these are only declarations of intent on the Government's part.

Before any legislation is introduced a consultation process is required. A discussion document on tax simplification will be released next month, which will also include options for other measures to reduce compliance costs including aligning tax payment dates, simplifying forms and reducing the number of taxpayers who have to pay provisional tax.