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Taxation Principles Reporting Bill one step closer to law

Tax Alert - August 2023

The Taxation Principles Reporting Bill (‘the Bill’) had its first reading May and was referred to the Finance and Expenditure Committee (‘the Committee’) for review. The Committee called for submissions and the Bill was criticised by submitters and opposition parties as being unnecessary, with particular concern also focused on the description of the tax principles in the Bill.

Despite this criticism, in late July the Committee completed its review of the Bill and the majority of the Committee recommended to Parliament that it be passed, but with some fairly technical amendments.

The purpose of the Bill is to oblige the Commissioner of Inland Revenue (‘CIR’) to report on taxation settings, with reports being made annually, and a more detailed report prepared every three years. As a consequence, the primary obligations in relation to the Bill fall on the Inland Revenue, however, there remains a concern that taxpayers will be required to supply additional information in order for the reporting to be meaningful (particularly given the references to economic income, refer below). Time will tell. The Bill requires the first report to be completed by the CIR before 31 December 2023.

The Committee specifically noted that it did not think the CIR should be reporting on the tax principles individually, but as a package, because of how the principles overlap and conflict. The Committee stated that ‘[w]e think the key principles, which relate to how a tax system is designed, should be framed in relation to the overall purpose of a tax system, which is to raise revenue, and in some cases to correct behaviour or market failures.’ The Bill now also includes a statement of the purpose of taxation.

The Committee revised a number of the descriptions of the key tax principles that the CIR will be reporting on and they now read as follows:

Of note is that the principles continue to refer to concepts of ‘economic income’, and comparatives of the level of tax paid on economic income by both ‘wealthy people’ as well as ‘middle New Zealanders’. Given economic income is a broad concept, taxpayers may be rightly concerned about the potential for further information to be gathered each year. The Bill also includes a new requirement that the CIR report ‘must take into account the impact of the tax system on different communities of taxpayers within New Zealand’. This may lead to more questions for taxpayers about what ‘communities’ they identify with.

The Bill was an initiative of the Hon David Parker; now that he has moved on from the role of Minister of Revenue it is less clear whether this Bill will continue to be prioritised and speed through its remaining Parliamentary processes to be enacted prior to the current parliament being dissolved on 8 September. When questioned about the Bill and the concept of ‘economic income’ in Parliament the new Minister of Revenue Hon Barbara Edmonds stated she supported the Bill and noted ‘I am willing to take time to consider the report back by the Finance and Expenditure Committee and will respond in due course.’

Even if enacted, if there is a change in Government following the election, this Bill may be repealed, with the National Party stating in the Committee report: ‘If this bill is enacted, National will repeal the Act when elected to Government.’

For more information please contact your usual Deloitte advisor.

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