Woods said some of the smaller funds are paying GST, while some of the larger funds are currently exempt.
"This is about correcting an anomaly that really has allowed some of those very large managed funds to get away with it.
"The smaller funds, doing a lot of the innovative stuff and actually charging people less, are already charging GST."
But Luxon said everyday Kiwis will be punished and could miss out on up to $30,000 by the time they reach retirement age.
"People are so angry about it. How can a Government pile on another tax in the middle of a cost-of-living crisis where everyone is doing it tough and just trying to get through it?"
National has started a petition on its website to stop the "KiwiSaver tax", Luxon told the AM show.
Luxon told RNZ that the party would not leave the GST levy on KiwiSaver in place but was coy on whether or not they would make changes to the scheme if they came into Government.
"What's important is that we need to stop it right now," he said.
"You can call it whatever you want, but what it basically is, is the Government putting a tax on your retirement."
He said the GST on fees will have a long-term effect on the value of New Zealander's KiwiSaver's.
"It is actually passed on and those fees eat away at a fund," he said.
"There's no doubt about it, the values of individuals' retirement savings accounts are actually being ripped off here."
Luxon said his priority is that New Zealanders continued to be encouraged to invest in KiwiSaver but, when asked, would not speak to changes the National Party may or may not make to the scheme if they took Government.
"We'll talk to that at the election, closer to the time, what I am telling you right now is that for the team of five million Kiwis out there, we need to stop this right now."
The proposed tax bill was introduced to parliament on Tuesday to change the way the tax is applied to service fees charged by managed funds, which currently are not subject to GST.
The Inland Revenue has calculated that the proposed change will add around $225 million a year to the government's tax revenues.
Financial agencies and GST experts have warned the tax will hit KiwiSaver balances hard and be passed on in the form of increased fees, while the opposition has described it as "yet another tax grab ... to fleece New Zealanders of their hard-earned cash".
The Financial Services Council of New Zealand (FSC) also described the changes proposed in the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill as legislative "overreaches" and a "suboptimal outcome" in the middle of a cost-of-living crisis.
The effect of the new rules will lift GST on fees for managed funds and KiwiSaver to the standard rate of 15 per cent. Currently the tax treatment of these funds varies.
Modelling from the Financial Markets Authority (FMA) warns the tax and its compounding effects will dent KiwiSaver balances by $103 billion by 2070.
This compares to total KiwiSaver balances which are expected to be $2196b in 2070.
Non-KiwiSaver funds will be hit by $83b. Total fund balances in 2070 would be $1757b. The figures were included in a Regulatory Impact Assessment (RIA) published with the rule change.
That amount of lost savings is equivalent to more than half the size of New Zealand's 2022 GDP.
Inland Revenue (IRD) provided an example of how the scheme would work for ordinary Kiwis with managed funds or KiwiSavers as even small annual changes quickly compound into thousand-dollar fees.
Someone with $100,000 in a fund charging a 1 per cent fee would see their fees increase by $96 a year. This would cost them $21,179 over 25 years.
Revenue Minister David Parker said the rules would fix the "inconsistent treatment of GST-able services depending on the way people currently invest".
When asked whether he was concerned it would simply direct funds from savers into the Government's pocket, Parker said there would be a long transition period.
"That payment is transitioned into over a long period of time ... over that time the market will respond accordingly. If fees are already at a competitive rate it might flow through in fees - if not, it may well be there is no effect on fees," Parker said.
Deloitte GST partner Allan Bullot said the Government's proposal was taking a "sledgehammer" approach.
"You are talking tens of thousands coming off for what seems like a little thing."
He said the bill, introduced to Parliament today, is designed to address a historical issue.
"Superannuation schemes have always been exempt from a GST perspective. Where there have been questions are around managed funds that aren't KiwiSaver funds," he said.
These are funds that operate as savings and investment vehicles like KiwiSaver funds, but are not actually KiwiSaver schemes.
The FSC said the changes to the taxation of KiwiSaver and managed funds "are not the best outcome" and that the bill "overreaches".
The FSC said it has been a "constructive participant" in the consultation process.
"Whilst we appreciate the efforts of the IRD to engage effectively, on the GST on managed funds and KiwiSaver issue there is much more work to do to get the right outcome for New Zealand," the FSC said in a statement.
"In the middle of a cost-of-living crisis, increasing taxes that are then likely to increase the fees that consumers pay to invest in KiwiSaver and managed funds, and potentially decrease returns, is a suboptimal outcome.
"We look forward to continuing to engage with the IRD and Government to get these settings right, as it's what New Zealanders deserve."
The RIA said that the current tax rules for management services were "complex and inconsistent" and that they could "distort competitive behaviour" by favouring one fund structure or another based on how it was taxed.
The issue at heart is that financial services are currently exempt from GST, but some services are not.
The Government has opted to streamline the rules by effectively mandating one rule for all, mandating that all management service fees be hit with a flat 15 per cent GST rate.
Streamlining the rules means people investing in managed funds can no longer take advantage of favourable tax treatment, but it will also mean that thousands of KiwiSaver users will likely be hit with higher fees and lower savings balances.
The RIA warned that once the rules are phased in in 2026 the Government will collect "additional GST of approximately $225m per annum".
This amount would increase by about 10 per cent a year as the economy and KiwiSaver funds grew.
IRD thinks this cost will be passed on to people who use KiwiSaver and will result in smaller savings funds.
The RIA said the rule change "will largely flow through to retail investors in the form of higher fees. If investor fees are increased, this will reduce after-fee returns and therefore the total amounts that are reinvested and saved over time".
IRD presented two examples of how the scheme would work for ordinary people who used managed funds or KiwiSavers.
The examples illustrate that even small annual changes quickly compound into thousand-dollar fees as savers and investors missed out on compounding returns from their funds.
Someone with $37,500 in a fund charging a 0.8 per cent fee would currently pay a $300 annual fee. Under the new rules, if the cost of the rule change were passed through to the investor, that fee would rise to $359, costing the investor $6490 over 25 years of contributions.
The average KiwiSaver balance for someone in their 40s is $37,000.
The Government did not announce the changes, but included them in a regular tax bill.
A press release announcing the bill angled on the removal of Fringe Benefit Tax on public transport and other changes, but did not mention taxes on Kiwisaver fees.
These funds have historically been subject to an effective 1.5 per cent rate of GST after a compromise between the industry and the tax department that saw 10 per cent of the funds as subject to GST and 90 per cent exempt.
Bullot said the legislation was designed to harmonise these rules, and that KiwiSaver schemes were "collateral damage" as evinced by the fact that KiwiSaver funds were raising more revenue than other funds.
Act leader David Seymour lent some lukewarm support to the change, but only in the context of Act's overall policy to radically lower income tax rates.
Seymour said he supported "low-rate, broad-based taxes" and believed "all goods and services should be treated equally for fairness and simplicity".
"We acknowledge that applying GST equally to all funds would slightly increase overall taxation. However, we note that total taxation is driven by total Government expenditure, so making the tax system simpler and fairer is a separate issue from the overall level of taxation".
The FMA has advised IRD that it believes the fees will be passed on in the form of increased fees.
IRD warned the Government the rule change will simply be passed on to savers, costing people thousands of dollars in lost savings over their lifetimes.
