The Government delivered its 2016 Budget with no new tax initiatives, other than reinforcing the positively received SME-friendly tax package from last month, and continuing to signal its commitment to ensuring New Zealand maintains robust international tax rules. The key announcement related to funding of the new tax administration system, primarily relating to the replacement computer system which has been stretched beyond its original design and useful life.
While the new tax administration system is to be applauded in its intention for an efficient and effective tax system, it also represents a framework for the enhancement of collection of information, and potential dissemination within the Government system and our network of tax treaty partners.
One of the tenets of the New Zealand tax system has been maintaining the secrecy of information received by the IRD. The secrecy provisions of tax legislation reinforce the expectation that information received by the IRD should only be used for tax purposes, and not shared with other people or organisations. There is no morality in New Zealand’s tax code, the rules applying equally to legal and illegal activities. As such, taxpayers had confidence they could disclose their information solely to determine their tax obligations.
However, the walls of secrecy have in recent times started to erode. Information sharing agreements have been signed with a large number of countries to facilitate the integrity of the international tax system and enhance debt recovery in other countries. More recently, the Government has sought feedback on the plans for automatic sharing of information with other tax jurisdictions to meet its obligations with OECD initiatives. The recent commotion surrounding our Foreign Trust rules through the release of the Panama Papers will inevitably lead to greater transparency and sharing of information. The Minister of Finance committed in his budget speech that, “our tax base and disclosure rules remain robust into the future”.
In addition to these international agreements, there has been growth in IRD sharing information within Government entities, such as the Police, ACC, Statistics; and proposals for sharing biometric information with the Ministry of Social Development. In the recently announced SME-friendly tax package, there were also two additional information sharing provisions. The first was for serious tax debt to be disclosed to debt agencies and the second for sharing information about serious offences with the Companies Office.
While the tax administration system enhancements funded through the 2016 Budget will improve the efficiency and effectiveness of the tax system, it will also increase the collection of information available to the IRD and potentially the Government as a whole. The Government needs to carefully consider the integrity of the tax system in what it does with that information. The lofty goals of ensuring effectiveness across Government and international harmonisation are to be lauded, but not if public confidence in the use of private information increases the potential for non-compliance and reduced disclosure to Government.