Are we finally moving tax into the 21st century?
Every now and then a once-in-a-generation opportunity presents itself for real change. The replacement of the outdated Inland Revenue computer system, FIRST, presents that opportunity for the collection of tax in New Zealand. But is the proposed spend future-proofing the tax system - the lifeblood of revenue for Government expenditure - or simply focussing on making it more efficient?
A lot has been said about the cost of the business transformation project being run by Inland Revenue, and we should see an acknowledgement of the expected $1.5billion cost coming through in this year’s Budget.
The Government has recently released two green papers about changes to New Zealand’s tax system to suggest and call for comments on a better use of digital services for its delivery, and a reduction in tax administration.
If we look at the overarching context of the changes which are being proposed, they effectively seek to use technology to move tax calculation and collection to real time (rather than end-of-year assessment), and make transmission of the information and payments simpler and more timely. The overall effect however, is to increase the number of touch points taxpayers will have with the Inland Revenue, something which is not generally desirable, but may be relatively painless if technology makes this happen automatically and seamlessly.
Naturally, the burden of these changes will fall squarely on employers, with the hope that on-going business technology improvement will naturally embed these changes without a need for wholesale change being forced on them. That said, those businesses which have not embraced technology may be forced into doing so (which could be a good thing). Getting technology-resistant pensioners to do likewise may be another matter!
However, pre-populated forms, automatic information transfers, and changes to the timing and collection of payments aren’t exactly earthshattering stuff. Yes it will make life easier, yes it will reduce the cost of compliance, and yes it will mean the tax position is more correct, in a timelier manner and in theory reduce debt collection, but could we use technology to do more?
The current tax framework is based on historic models of taxation, using principles such as source and residency to assess tax. However, these principles are seriously out-dated. The mobility of money and people means there’s an increasing move to virtual rather than tangible business environments. The world is changing at an incrementally increasing rate. It is widely acknowledged that today’s rate of change is the slowest we will experience. A tax system needs to embrace this change, and technology needs to make it happen.
The global debate about BEPS (Base Erosion and Profit Shifting) and GST on online purchases emphasises that the current system for levying and collecting taxes requires a compete rethink. Inland Revenue’s business transformation project needs to reconsider the framework for the levying of tax, not solely focus on how to make the current out-dated rules work more efficiently, otherwise we will simply spend an awful lot of money developing a system that will effectively collect an ever diminishing amount of tax. After all, how long is the life expectancy of a cell phone, or laptop? As a country we can’t afford to invest $1.5billion in a state of the art tax system which will quickly become a dinosaur. Instead, there needs to be an investment in a framework for transformational change.