Taxation (Annual Rates, Venture Capital andMiscellaneous Provisions) Bill

It is a pleasure to take a call on Part 4. I have taken calls previously on this bill, and I have to say that components of it have left me feeling extremely uneasy. But, to be fair to the Minister, there are some components of Part 4 that I want to talk about, and I refer to section 45, “Refund of excess tax”, inserted by clause 134. I think this is rather meritorious. However, I find it a little ironic, especially after listening to Mr Cullen getting flummoxed at question time today when he was asked by the new member, Kenneth Wang, whether he could think of anything he has done to reduce taxation in this country. For the first time, I heard him say: “I don’t know.” It was the first time I have found him short of a word.

It was ironic, I thought, that someone from the National Party had to stand up—Mr Key, in fact—to say that there has been something, which is the Māori rates of taxation. We will come to that in Part 5. The argument I am building relates to the matter of the refund on excess tax, and the question I have for the Minister, which I am hoping he might be able to help out with, is: will interest be paid on the amount of the payment that is given back to the taxpayer? The provision may be there, but after a quick glance I could not see any reference to it in this part. I think it is only fair and reasonable, if someone is assessed by the Commissioner of Inland Revenue as having overpaid—if he judges that someone is due a tax refund—that that person should also be due the interest that has been carried on overpayment. I think the Minister is conferring with his officials in order to take a call and respond to that, because it is a very fair question.

The other concern I have is that, having dealt with the Inland Revenue Department as a business person over the years, and having mounted arguments with the department that there has been an overpayment of tax, I, the taxpayer, have incurred the cost of proving my position. So although I feel it is meritorious that the Minister is now framing legislation that will refund excess tax paid, I also want to ask him whether the costs incurred in proving that someone has paid too much tax will be reimbursed. I think that is a fair position.

Hon Dr Michael Cullen: There’s nothing in this part about that.

BRIAN CONNELL: There is nothing in this part about that?

Hon Dr Michael Cullen: It’s the wrong part.

BRIAN CONNELL: No, it is not the wrong part. If we are talking about a refund on excess tax, and if we are proven—

Hon Member: Page 117?

BRIAN CONNELL: Page 119. If the commissioner is saying that someone is due a refund because he or she has paid too much tax and that taxpayer has to incur the cost to prove that position, is it not fair and equitable that that person also has his or her costs refunded for proving the point?

Now, over the last 2 or 3 years the Minister has struck me as being a fair man, so I do not think that is an unreasonable question to pose. If he is saying to me that I can find an answer to it in another part, then I ask him please to take a call and point out where that is. If not, I ask that he takes advice from his advisers and tells the Committee what he intends to do about the issue. I remind him of my first question—that is: if there is a refund due on excess tax, will the Inland Revenue Department put its hand in its pocket and pay the interest on that money, just as any other taxpayer would have to do had the situation been reversed?

The Minister owes the Committee the duty to respond to more than just Brian Connell’s question regarding the issue of whether interest will be paid. A more important question arises out of clause 134 with regard to the refunding of excess tax. That refund is available if taxpayers can go to the commissioner and prove that they may, for one reason or another, have paid an excess of tax, but they must do so inside a period of 4 years. I ask the Minister: why 4 years? I think I am right in saying that taxpayers currently have the ability to apply for a refund of excess tax within an 8-year period. But here we have a Government so intent on overtaxing New Zealanders that it is making a further attempt—that is how this looks to me—to close down any possibility for taxpayers who make a genuine mistake to be able to approach the Commissioner of Inland Revenue and demonstrate that they have made a genuine mistake. Now, the Minister is so tight and so keen to obtain that money, that he is halving the time available for those particular taxpayers to realise they have made a mistake and to make application.

I was not on the Finance and Expenditure Committee and I fully accept that I may not be interpreting the law properly. Tax law by its very nature is very complex. But it seems to me that I am interpreting it properly, and if that is the case, the Minister must realise that a taxpayer—perhaps in a business where he or she is not deeply involved in the letter of the law regarding tax—or a taxpayer’s accountant, may take some time to pick up the fact that a genuine mistake has been made with a tax return. If that is the case, the taxpayer can then go to the commissioner and say: “In all honesty, I have made a mistake and I’ve paid about $10,000 in excess tax.”, and can demonstrate that to the satisfaction of the commissioner. But, now, Dr Cullen has come into the Chamber and said: “Aha, you had 8 years to do it but we’re going to halve that opportunity.” Not only does Dr Cullen want New Zealanders not to get their excess tax payments back but he is also intent on building magnificent and huge resources on the back of hard-earned tax. I wish the Minister would answer that.

The other issue that intrigues me is contained in clause 145, an interesting clause that was unanimously struck out by the select committee. In the bill as introduced to the House, that clause stated: “Section 57 of the Partnership Act 1908 is repealed.”

Brian Connell: That’s simply the issue.

Hon DAVID CARTER: Well, I think there is a fixation in the House at the moment with partnerships, and that is the very reason I raise the question of why that particular clause was ever there and what it actually meant. It had obviously existed without complication for the tax system since 1908, but along came Dr Cullen and it was probably another means of making sure he extracted every last dollar out of the poor, suffering taxpayers of this country. So it was proposed that it would be taken out without any explanation. I thank Dr Cullen, who looks as if he is seeking advice for the basis of that. There may have been a very legitimate reason, but certainly when I look at the commentary on the bill, I cannot see any notice of it. We now see that the select committee perhaps decided to toss it out, but there are not many members of the select committee here in the Chamber from whom I can seek advice.

Those are the two important points that I want the Minister to address. I would like an answer on the first point in particular, which I feel very aggrieved about, because it looks to me as though the Minister is trying to close down an opportunity for taxpayers who have made a mistake and made an overpayment of tax to be able to prove that genuine mistake to the satisfaction of the commissioner. Here is Dr Cullen, closing down that opportunity in an attempt to drag more and more money into his coffers as he prepares himself for next year and the biggest electoral bribe we will ever see.

I want to respond to a couple of points. Regarding the partnership point, the member has actually got it around the wrong way. The repeal of the provision was in order to remove the requirement to go back to the High Court every 4 years, in relation to a special partnership. The select committee decided in the end to take that out, because on the advice of the Ministry of Economic Development, a fuller review was taking place on special partnerships. So, probably, we will come back to that issue later. It was designed in here to simplify things—not in any way at all as a tax grab. On the other matter, I refer the member to subsection (4) of section 45, inserted by clause 134. The 8-year period remains where the overpayment is the result of a clear mistake or a simple oversight.

The Minister, when he got up, could have answered the question that my colleague Mr Connell raised about clause 134. I think the answer to the question may be that new section 45(1) in clause 134 states in part: “the Commissioner must refund an amount that a person has paid as tax if—(a) the Commissioner is satisfied that the amount represents an excess over the amount properly assessed”. I presume that the proper assessment does include the interest rates that apply on tax unpaid or tax paid, according to the normal Inland Revenue Department schedule. I think that we would both be grateful for that clarification because one can easily imagine a situation where the taxpayer made a mistake and paid too much tax, and over a 4-year period—or as the Minister is suggesting, perhaps an 8-year period—there would be considerable interest accrued and I would hate to think the department had the use of the money and was not paying interest when it should have done.

I would not have thought that intent when the tax is paid is relevant to whether interest is calculated as part of the assessment. If I overpay because I overestimate my provisional taxpayer’s income, it should not make any difference that I did that because I, or someone else, made a mistake. I hope the Minister can get up and tell us a bit about clause 134 because the amounts involved could be very significant, and I would hope that the intent or the reason for the overpayment is not relevant to the interest calculation. I might come back to that.

There is another section, for which I want to indicate support for a change, but again I would like the Minister to explain the rationale for it. That is clause 141, where we see an amendment to the Taxation Review Authorities Act and a change to the small claims jurisdiction of authorities. The shift from $15,000 to $30,000, which looks to be extending the scope of a small claims jurisdiction, is almost certainly the right thing to do. But I wonder whether the Minister can relate that shift to his general tax policy, because this shows an understanding that, for relatively small amounts of money, a whole great big process is not needed to sort out the claims. The fact that the threshold for the jurisdiction has been doubled seems entirely inconsistent with the Government’s policy that it will not move any other tax threshold.

So here we see the threshold being moved from $15,000 to $30,000 in recognition, not just of the procedural efficiency that can be gained, but, I presume, in recognition of the fact that people are simply paying more tax. Smaller claimants find themselves paying more tax. How does it fit with the overall approach to thresholds in the tax system? The Minister’s own coalition and confidence partners have put it to him that he ought to be shifting tax thresholds in recognition of the same kind of phenomenon. GDP has grown, incomes have grown—they have to because that is how GDP grows—and more people have moved into higher tax brackets. It is reflected in this particular change but not reflected in the rest of the tax policies. So the Minister could explain that.

There is another clause that I am interested in—and I have to say that I have approached this as a layman, and the Minister may be able to help explain.

Hon Dr Michael Cullen: I’m a layman too.

Hon BILL ENGLISH: Well, we pay the Minister to know about it, so he can show us whether he does. I am interested in clause 136, regarding people who are treated as registered. I thought someone was registered if he or she was registered.

I will ask the Minister a question. I wonder whether he could explain to the Committee the changes that are being made in clause 125, “Zero-rating of services”, because it is quite an interesting new clause. The clause states that the present section 11A(1B) is replaced by the following: “(1B) Subsection (1)(j) does not apply to a supply of services that is treated by section 8(4B) as being made in New Zealand unless the nature of the services is such that the services can be physically received at no time and place other than the time and place at which the services are physically performed.” I have been nutting that out and thinking about it and I figure there must be some rort that somebody has worked out. Is this when people are providing services to people in New Zealand from outside, and they are deemed to be within New Zealand? It is an amendment to the present section, which seems to be quite straightforward: “(j) the services are physically performed outside New Zealand or are the arranging of services that are physically performed outside New Zealand;”. That is zero-rated. Now we have this peculiar sentence. I have been trying to think what the nature of a service is that is physically received at no time and place other than the time and place at which the services were physically performed. It would seem to be logical that all services must be performed at the time they were performed. Logically, a service can only have been performed at the time that it was performed. If it was performed at a different time, then it was not performed at that time.

Hon Bill English: The member doesn’t understand.

Hon RICHARD PREBBLE: I do not. I freely admit that.

Gordon Copeland: It could be in different places.

Hon RICHARD PREBBLE: Metaphysically, it might be. But it was either performed at the time that it was performed, or it was not. Here we are—

Hon Bill English: The key word is “only”.

Hon RICHARD PREBBLE: Does the member mean that it could be performed only at that particular time and at that particular place? I would like to know what services those are—[Interruption] The member cannot think of any? I am having difficulty, myself.

Gordon Copeland: I can think of a few.

Hon RICHARD PREBBLE: The United Future member says that he can think of a few. That would be interesting. I suppose hot cross bun making can only be done—

Hon Bill English: It is paying a credit card bill while you are flying with an airline, over the Internet.

Hon RICHARD PREBBLE: The suggestion is that it is paying a credit card bill while one is flying with an airline. The Minister is getting advice, and I would be interested in that outcome.

That brings me to another point, which the Minister might like to comment on. When the goods and services tax was introduced it was said that it would be a nice, simple, and easy tax to introduce. If one now looks at the sheer complexity of the amendments that we are making, and then one looks at what is being amended and the sheer complexity of that, it would appear to me that GST is becoming rather complex. Is that the situation? If so, is there any solution other than introducing these incredibly complicated amendment bills that we now introduce every year? I wonder, as the Minister is part of a reforming Government, whether he has had a look at that and whether there is any great solution, or every year are we to pass clauses that are almost metaphysical in their nature? When one looks at some of the other clauses, they are almost police State in their nature. They declare things to be, and people must provide information, in a way that would be totally unacceptable in any other legislation introduced into this Parliament. So if the Minister has been looking at GST generally, given the sorts of problems I can see from the zero rating clause, I would be interested in the answer. If it was a rort that we are fixing here, I would quite like to know what it was.

I move, That the question be now put.

In speaking to Part 4 of the Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill, I pick up where the Hon Richard Prebble left off in his contribution. New Zealand Governments—not just this Government—have just spent a lot of money on rewriting the Income Tax Act in language that people can understand. In the amendment bill going through its Committee stage tonight, we have language that is extraordinarily difficult to understand. Mr Prebble was just focusing on clause 125 and the new unanimous clause 125(1B). I note that that refers to a section 8(4B). I draw the Minister’s attention to clause 140, “Supplies of services made before insertion of section 8(4B)”. That would imply that this bill is presumably inserting that section, because, if some previous legislation inserted that section, it sure does not tell us. I looked back in the bill to try to find what the insertion of section 8(4B) is all about. When I look at clause 8—which would become section 8—I cannot find any insertion of section 8(4B).

But then the subclauses under clause 140 refer to section 84B. I would like the Minister to assure the Chamber that there is no typographical error in this clause, because it may be purely coincidental that we have in the one clause references both to section 8(4B) and to section 84B, which has subsections numbered in brackets. It is difficult to understand exactly what is being done in this clause, because I can find nothing in the bill that inserts section 8(4B). If it was inserted by some other legislation, this clause should say so. How is anyone meant to understand what this clause means if the title of the clause, “Supplies of services made before insertion of section 8(4B)”, does not indicate what legislation inserted that section? I cannot see where this legislation inserts it. To me, the clause is somewhat meaningless as it is currently written.

What troubles me about this bill in its Committee stage tonight is that it is extraordinarily complex. There is a risk with this complex legislation. I would not mind betting that not many members of the select committee—I was not one of them—understood all this stuff. I would be prepared almost to bet my last dollar that not many of the members—certainly the Government members—understood all of it. I think that understanding is important, if we are passing important tax laws—and Part 4 is, as I understand it, to do with amendments to the Goods and Services Tax Act, which are hugely important. I just think we deserve further explanation from the Minister of what some of these clauses that are so difficult to understand exactly mean. The Chamber deserves that, because the danger is that errors made in these clauses have huge consequences for people.

Here we are talking about supplies of services made before a certain action, and the insertion of a certain section, and goodness knows what that means. It is businesses that are paying GST. By and large, businesses do their own GST work, and the Act needs to be pretty simple for them to understand. I do my own GST returns for my own business, and goodness knows what some of these things mean. So I think it is only fair and reasonable that the Minister should explain to us what on earth “Supplies of services made before insertion of section 8(4B)” means, and when that happened. It certainly does not appear to be happening in this legislation. If it was inserted by some previous legislation, I ask the Minister where that is clarified. Presumably the previous legislation would simply contain section 8(4B). I think we are owed an explanation from the Minister.

I move, That the question be now put.

I want to revisit some of the previous speakers’ calls, particularly on clause 125, “Zero-rating of services”. I think all members would agree that the GST component of our law is very complex. I will not try to work my way through section 11A(1B) in clause 25(1), because I do find it complex, and I freely admit that. I thought it might be useful if the Minister provided some examples of when these services actually would be zero-rated. I would find that particularly useful, and I am sure other members would also. Three speakers—and I am the fourth—have got to their feet and said they are struggling to understand this clause. I think it would be useful, given that the Minister’s advisers are here, for him to take a call and supply some examples.

Another area I would like to bring to the Committee’s attention is clause 129, “Calculation of tax payable”, particularly new paragraph (b) in clause (1): “the failure of a registered person to make the deduction in the earlier taxable period arises from …”. Paragraph (b) goes through to subparagraph (iv): “a clear mistake or simple oversight of the registered person.” I am really struggling with how one could make a clear mistake or oversight, because I would have thought that GST was payable only on the presentation of an invoice, or, in the case of buying or selling property, on a settlement statement. I know from having run my own business and having done GST returns that it is a guiding principle—almost one that is set in stone—that one does not pay unless there is a GST invoice to pay on; otherwise, one is putting oneself or one’s business in some jeopardy. So I pose another question to the Minister whilst he has his officials here. I ask the Minister whether he could take a call and give some insight into what this definition—“a clear mistake or simple oversight of the registered person.”—really does mean, because the way it is written now strikes me as being very vague. Some unscrupulous person could probably drive a bus through it if he or she wanted to. It strikes me that, as we are spending time in the Chamber now framing legislation, we should get it right the first time. So if the Minister could take a call on that issue also, I would be grateful.

Finally, I turn my attention to clause 141. My colleague Mr English has already raised this, but I was also intrigued by this clause, “Small claims jurisdiction of authorities”. I think this is a good initiative. I think it reflects the fact that as New Zealand becomes more prosperous and as individuals in New Zealand become more prosperous they are paying more tax. Once, not so long ago, $15,000 was probably a big amount. I think $30,000 is now more realistic, and I am very pleased to see that we are framing legislation that allows the man in the street to go to small-claims jurisdiction, rather than having to go through a very expensive court process. To take the IRD to court proceedings and pay for that is almost impossible for the average punter. So I think this is a very good initiative, and I commend the Committee and the Minister for it.

If, though, my reading of this is correct, does it not raise an issue or two in the Minister’s mind about how much tax New Zealanders are now paying? Does it not start to register somewhere that it is about time that he and the Government started to reflect on the fact that New Zealanders are now being overtaxed?

I move, That the question be now put.

A party vote was called for on the question, That the question be now put.

I raise a point of order, Mr Chairperson. I would like to know why the ACT party vote is being called for after the Green Party vote. Parties should be called in order of precedence, and we are a larger party. I am deeply offended at our being asked to vote after the Greens.

The CHAIRPERSON (Hon Clem Simich): I apologise to the member. He is absolutely right, and the Clerk has apologised. I think in that case we should run through the order again.