Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill
Part 2 of the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill refers to amendments to the Tax Administration Act 1994. Before I get into the detail, I have to say that I hope the Government has a serious look at the Tax Administration Act 1994. It is a shambles. It is an absolute shambles.
💬 Hon Dr Michael Cullen: It’s a National Party Act.
Dr the Hon LOCKWOOD SMITH: It is not a shambles because of the provisions of 1994; the problem is that the Act has been amended so many times since that time that any practitioner would require a PhD to find his or her way around it.
💬 Hon Dr Michael Cullen: Well, you’ve got a PhD—no problem.
Dr the Hon LOCKWOOD SMITH: I tell the Minister he should try to find his way around that particular Act. It is just a shambles.
What this bill does, though, is deal with some of the compliance and penalties provisions in that Tax Administration Act. There are three particular issues that the Opposition wants to focus on. One relates to the issues around unacceptable tax positions. They start with clause 184. Then there is an issue around voluntary disclosure provisions. They are particularly relevant to clause 188. Then there is an issue in relation to simple mistakes or errors made in the filing of tax returns. The clause that most closely relates to that is clause 191.
I will start with the unacceptable tax position provisions. If we look at the commentary made by the Finance and Expenditure Committee, we see that what the select committee has to say is quite revealing. The select committee heard a number of submissions on this issue. Before I go on to discuss what the select committee said, let me make very clear what the provisions in this bill do in respect of unacceptable tax positions. The unacceptable tax position provisions have caused a real problem for taxpayers. Back in 2006 an attempt was made to remedy that problem, to give the Commissioner of Inland Revenue discretion to not apply tax penalties when certain unacceptable tax positions were taken, because it would simply be unfair to do so. But the problem was not fixed. The effort in 2006 to fix the problem did not fix it.
What this bill is doing—and I move specifically to the provision—in clause 184 is clarifying the position in respect of unacceptable tax positions. It makes it clear that where the new international financial reporting standards lead to someone developing an unacceptable tax position, that person will not be penalised for that, which is quite proper. Most particularly, clause 184(2) makes very clear that, from now on, unacceptable tax positions can apply only to income tax and the tax shortfall arising from the taxpayer’s position, and it sets out the thresholds. What that subclause is doing is making it very clear that the unacceptable tax position provisions can no longer apply to GST or to withholding tax payments. What is interesting about this is that the Government has recognised that the attempts to fix up the unacceptable tax position provisions in 2006 did not work adequately. I believe that that is why the Government is now making it very clear that, in fact, GST filings and withholding tax filings are no longer covered by the unacceptable tax position provisions.
If we go from there to the select committee’s report, we see that the issue now becomes the date on which this new clarification applies. The select committee commentary states that the majority believe: “The amendments to the unacceptable tax position penalty in the bill have not been made retrospective because the discretion enacted in 2006 (and repealed in this bill) was backdated to 1 April 2003. The majority of us consider that this dealt with the cases where the imposition of that penalty may have been unfair.” What is inconsistent about that comment made by the majority of the select committee is that if the changes made in 2006 had fixed the problem, we would not need the amendment now being made to clause 184. We would not need further clarification that GST and withholding tax payments are no longer covered by the unacceptable tax provision penalties. If, in fact, we need clause 184(2) to make clear that those unacceptable tax position provisions will not apply to GST and withholding tax, why can we not, in the interests of fairness, backdate it? The majority of the select committee said that backdating should be unnecessary because the issue had been fixed in 2006, and there was discretion for the commissioner to deal with the issue back to 2003. If that were correct, we would not need this subclause. The fact that we have got this subclause shows that the issue was not fixed in 2006, and therefore this subclause should be backdated to avoid any doubt that issues to do with GST and withholding tax payments are not covered.
I have put an amendment before the Committee to amend clause 184(3). It backdates it to at least 2006. I accept that maybe the fiscal consequences of backdating it to 2003 could be significant, but there should be some backdating to at least recognise that the 2006 effort to fix this issue failed. If it did not fail, we would not be doing this provision now. That effort did not produce the outcome expected by this Parliament; therefore, it should be reasonable to backdate this remedial legislation to at least the time that we tried to fix it, and that was 2006. That is why I have laid an amendment on the Table to backdate this provision—to have it apply from 1 April 2006 instead of from 1 April 2008. It does not take it right back to 2003; it takes it back to when this Parliament tried to fix it up but failed to do so. That is why it is being fixed up now—because last time round the House did not achieve the outcomes.
What the practitioners, the professionals, tell us is this: although the Inland Revenue Department policy people were supportive of the change, although the policy people advised that the changes made in 2006 would pick it up, Inland Revenue Department operations did not deliver what this Parliament had expected to be delivered by those 2006 amendments. That is why clause 184(2) is required, and it should be backdated to 2006 to make sure that what this Parliament intended in 2006 is now delivered.
That is the first issue in respect of Part 2 that the Opposition wants to cover. There will be other issues, but that is the particular provision in respect of the unacceptable tax position. I want to make clear—and I am sure this speech will be called to an end very soon—that the other key issues relate to clause 188. That clause is in respect of voluntary disclosure of tax shortfalls. Again, we previously tried to fix that up. Everyone in Parliament agrees that it is really important to encourage voluntary disclosure, because in that way we collect more revenue. I want to come back to that clause, because I think that, with its current wording, we are not going to get voluntary disclosure to the extent that we should. The Opposition wants to put forward further debate on that.
The other part in Part 2 that I give notice we want to focus on is clause 191, which repeals section 141KB. Section 141KB deals with only section 141B of the principal Act. Section 141A deals with simple mistakes made by people filing tax returns. I want to come back to the issue, which I think is very real, that where people make simple mistakes they should not be penalised. There are issues around clause 191. There is a classic example, which I should mention, where a person filed a tax return, used the wrong return to file it, paid the right money, and was penalised.
Debate interrupted.
Sitting suspended from 10 p.m. to 9 a.m. (Wednesday)