Date posted: 06/05/2022

Tax administration in a digital world

Inland Revenue will need to work together with taxpayers and other arms of government to ensure that system data is accurate and secure.

In brief

  • CA ANZ recommends that Inland Revenue invest significantly in in-built system validations within START
  • CA ANZ supports the principle of consent-based sharing of taxpayer data with third parties
  • Tax agents and other intermediaries should continue to be an integral part of New Zealand’s tax administration system

CA ANZ broadly supports introducing measures to simplify and enhance compliance, lower compliance and administration costs, and drive efficiencies and productivity. The completion of Inland Revenue’s Business Transformation Programme presents the opportunity to explore enhancements to tax administration to achieve these outcomes. CA ANZ sees this process as continual and evolving to maximise benefits for all New Zealand taxpayers.

The draft Issues Paper points to the following benefits of a more digital tax system: 

  • Less duplication, providing a reduced risk of errors. 
  • Less rework for Inland Revenue. 
  • Digital transactions leave a footprint, so non-compliance is riskier. 
  • Easier compliance means taxpayers are more likely to comply. 
  • Lower compliance cost for taxpayers.

“There is a tension between Inland Revenue’s desire to be the one source of truth, and integration of tax into natural business systems where tax outcomes are a by-product. In essence, Inland Revenue would be an aggregator of information, and care will be needed to ensure duplication is minimised and data retained by Inland Revenue is accurate,” said New Zealand Tax Leader John Cuthbertson.

“We recommend that Inland Revenue invest significantly in in-built system validations within START and look to utilise third party data to cross-check wherever possible.”

“Accuracy of information should be included with fairness, integrity, efficiency, and effectiveness when evaluating the performance of any future tax system.”

Inland Revenue will need to work together with taxpayers and other arms of government to ensure that system data is accurate and secure. 

“Accuracy of information should be included with fairness, integrity, efficiency, and effectiveness when evaluating the performance of any future tax system.”

“However, taxpayers should only be accountable and expected to verify the information they have provided or have knowledge of,” said Cuthbertson.

CA ANZ supports the principle of consent-based sharing of taxpayer data with third parties, provided the consent process allows the taxpayer to determine the boundaries of that consent. In addition, Inland Revenue will need to let taxpayers know how that data is protected.

Tax agents and intermediaries: an integral part of the tax system 

Cuthbertson also highlighted the importance of tax agents and other intermediaries continuing to be “an integral part of New Zealand’s tax administration system.”

This would ensure efficiency, accuracy, and integrity in the digitalised tax and transfer system. It would also provide choices to taxpayers and businesses on how they satisfy their tax liabilities in a way that is most efficient for them and meets their preferences (i.e. whether they interact with Inland Revenue directly or engage a tax agent or tax intermediary). 

According to CA ANZ, intermediaries should not be categorised or viewed as one amorphous group. The degree of interaction and access required within the tax system will vary significantly across the spectrum of intermediaries. This needs to be considered when specifying appropriate entry requirements and level of access rights.

“A minimum level entry criterion will be required. An appropriate balance is also needed. However, we caution against over-regulation,” said Cuthbertson. 

The amount and nature of any qualifying criteria imposed should be commensurate with the extent of access to the Inland Revenue system and data and the permissions granted. It would be appropriate for minimum standards to be set for the various groups who will interact with the system. 

These standards should reflect, for example, whether they are interacting with the system by choice and for commercial gain or because they are obligated to under relevant legislation; and the level of access sought. Also relevant is whether the external party is interacting with the system only to provide data or whether they are additionally accessing data from the system to provide services. 

Inland Revenue acknowledges that most tax agents are members of a professional organisation that imposes educational and ethical standards. Professional organisations also have a robust review and disciplinary process to ensure that members are held to account for any breaches of those standards. 

Cuthbertson suggested that these aspects should be given appropriate weight in designing any future regulatory framework.

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