- Trust remains an important issue for the New Zealand tax transformation program.
- Concerns centre about the amount of information sought by tax officials.
- Tax agents are the ‘first line of defence’ in protecting the integrity of tax information.
By Paul McBeth.
A key unresolved issue for Inland Revenue’s business transformation program is establishing trust and confidence in a tax administration system where information is provided in real time, and more frequently.
While real-time information can bring benefits of efficiency and adaptability, it can also increase the risk of loss of data quality. Tax returns filed after months of review are inherently more accurate than real-time raw system data. An interim return on a two-monthly basis is somewhere in between.
Tax Management NZ (TMNZ) Chief Executive Chris Cunniffe says Inland Revenue needs to recognise what it is getting. “More data more frequently won’t all be great data. We see this with provisional tax payments now. This leads to questions about how useful the information will be for IR.”
(Pictured: Chris Cunniffe)
Cunniffe believes there needs to be trust not only in the process of providing real-time information, but also in the policy and operational principles that will determine how Inland Revenue will use that information.
In the past, Inland Revenue has sought myriad of details that ended up unused and sitting on a database despite the expense to taxpayers of collating and providing that information.
The expanding reach for information raises natural questions of trust, says EY New Zealand Executive Director David Snell.
He wants to see a clearer pathway on the types of data Inland Revenue wants to ensure the department doesn’t simply shift the cost of administration to taxpayers.
“It’s absolutely vital IR maintain that trust,” he says.
Snell also doubts the government will stop with the program, saying the level of investment could lead to more significant changes around the use and application of data.
(Pictured: David Snell)
Privacy – the big issue
Concerns about data integrity are compounded by directly linking taxpayers’ and Inland Revenue’s systems, while at the same time expounding the prospect of more do-it-yourself tax returns, piggybacking on the likes of accounting software developers Xero and MYOB, which have taken an active role in the transformation program.
Chapman Tripp tax partner David Patterson says New Zealand’s tax system has already shifted immensely in the three decades he’s been practising, with secrecy provisions watered down through a series of exclusions and sharing agreements, and the courts taking a much different approach to using taxpayer information over the past decade than they have done previously.
However, Patterson says pushing back against digitisation of the tax system would be impractical, given the move for businesses to get online in a more globalised world.
“The core value of secrecy has given way to some greater claim of efficiency,” he says. “Costs to taxpayers are falling – they have gone down and will continue to go down. Welcome to the new world.”
Inland Revenue’s business transformation program attracted plaudits from the Organisation for Economic Cooperation and Development in last year’s biennial forum on tax administration.
CA ANZ Inland Revenue survey
Chartered Accountants Australia and New Zealand (CA ANZ) has long advocated including end users in Inland Revenue’s business transformation. CA ANZ has sought to involve chartered accountants and other users in the design and testing of the new tax system, seeking to improve the user experience.
CA ANZ New Zealand Tax Leader John Cuthbertson says, “We wanted to ensure that the real-life experience of accountants and tax agents was included in Inland Revenue’s end products.
(Pictured: John Cuthbertson)
“One of the aims of Business Transformation is to simplify life for taxpayers. We needed to make sure the most regular users were not forgotten.”
Cuthbertson says there’s also a positive flip side to the increased volume of information resulting from Inland Revenue’s modernisation program.
“You can use the information that is available for the benefit of your clients, for example, trend analysis, market growth and early identification of opportunities.”
There’s no better time to promote trust in the new tax system. The success of business transformation relies on Inland Revenue listening to feedback from stakeholders, such as providing adequate training periods before each phase is rolled out.
“You’ve got to be optimistic – Inland Revenue have made a significant commitment to the business tax system and, as the November 2017 latest CA ANZ-TMNZ survey on satisfaction with IR service shows, they have listened to feedback following the launch of My GST,” Cuthbertson says.
Stepping up a gear
The business transformation program is stepping up a gear, with the next tranche of taxes set to transition to the new system.
The phasing in of PAYE and investment income collection to the new system starts on 17 April, with Inland Revenue migrating GST last year.
The program seeks to change the way Inland Revenue interacts with taxpayers and agents, and Inland Revenue estimates it will cut up to14 hours a year off the time SMEs spend on compliance by 2024, generating savings of between NZ$635 million and NZ$1.1 billion.
That’s an admirable goal, however there are some practical concerns about the changes after a less-than-seamless GST transition, which left a number of agents facing greater complexity in having to deal with both Inland Revenue’s systems when managing GST and other taxes during the transition period.
The CA ANZ-TMNZ survey on satisfaction with Inland Revenue’s service shows that more than half of the respondents believe My GST is operating well.
However, more than half are nervous about having their clients’ systems talking directly with Inland Revenue’s and 42% are concerned about providing real-time information to Inland Revenue.
Related: Chartered Accountants want training from IR ahead of tax system changes
Chartered Accountants rate their happiness with Inland Revenue, and training for Business Transformation, in latest CA ANZ IR satisfaction survey
EY’s Snell says a key tension is that real-time information flows bring a heightened chance of mistakes and allowance must be made for things to be rectified.
“There are bound to be things the employer does not know within a two-day time frame,” says Cuthbertson.
“There has to be some mechanism in place to ensure the employer isn’t penalised unduly if they’re adjusting things in hindsight.
“The process of correcting errors should also be simple and seamless. There remains a human element in the new system that must be allowed for so that users have the confidence to do what needs to be done.”
Related: NZ Tax Roadshow
Join the CA ANZ Leadership and Advocacy Tax team to receive expert insights into the latest business tax changes at a location near you. April – May 2018, 24 locations around NZ.
Paul McBeth is chief reporter for BusinessDesk, a New Zealand economic and business news service.