Taxation (Transformation: First Phase Simplification and Other Measures) Bill

I move, That the Taxation (Transformation: First Phase Simplification and Other Measures) Bill be now read a second time. This is a small tax bill, but with a major purpose: to help bring about a simpler, more certain tax administration system for New Zealand. In this context, the proposals contained in the bill represent a small but important step towards enabling the Inland Revenue Department to progress its business transformation programme. This multifaceted programme of reforms will, over the next few years, modernise the way the tax system is administered, using updated business practices and new technologies to make it easier for people to manage their tax affairs.

To that end, the bill proposes to deal with some of the more immediate legislative obstacles to reform while taking some steps to make other rules simpler for taxpayers in the interim. Measures to simplify the tax rules for employee share schemes, for example, are designed to make the rules less onerous for employees participating in these schemes. These are schemes where an employer offers its employees shares in the company as part of their remuneration package. The practice is often used to encourage staff retention and motivation. Under the current tax rules, the value of these shares is treated as an income substitute, but is not subject to the usual PAYE rules. Instead, employees who receive share scheme benefits must file a tax return and account for the tax on the value of the shares themselves. This can act as a deterrent to participation.

To simplify the rules, proposals in the bill allow employers to choose to withhold tax on an employee’s behalf as part of the PAYE return. I want to thank the Finance and Expenditure Committee for its recommendations to make improvements to the bill in relation to employers offering such schemes. For large employers, the committee has recommended that the time when an employee is treated as having received employment income from a share scheme under the current proposals in the bill be deferred, to give employers more time to meet their compliance obligations under PAYE rules. It has also recommended that the scope of the proposals be resized so that employers need only focus on arrangements that are directly between the employer and the employee. For example, the committee has recommended that the obligation to disclose via the PAYE system the value of share benefits received by former employees should remain with the former employee, rather than with the employer. The recommendations acknowledge the potential compliance costs of the proposals and helpfully seek to balance them with the need for change.

The remaining proposals in the bill focus on removing certain obstacles to reform of the tax administration system and on simplifying certain interactions between taxpayers and the Inland Revenue Department to make them more efficient and to make it easier for people to manage their tax affairs. They include removing outdated requirements for certain communications between the Inland Revenue Department and taxpayers to be in writing or to be delivered by post, and allowing documents such as tax returns to be filed under an electronic signature. Other proposals in the bill will simplify current processes for taxpayers and allow the Inland Revenue Department to share certain information, to provide better services to its customers. These and other measures proposed in the bill open the way to a new, modern tax administration system, one that will make it easier for people to get their tax right and to receive the social policy payments that they are entitled to.

I want to thank those who submitted on the bill, and I thank the committee. I commend the bill to the House.

Debate interrupted.