By Allan Bullot<\/p>\n
\u00a0<\/p>\n
Over the past 40 years, New Zealand\u2019s GST has evolved but the underlying concepts from day one has endured.\u00a0 Our GST system has remained broad-based, generally applying at a single rate with few exceptions.\u00a0 This has allowed it to keep its simplicity, avoid many issues seen in overseas jurisdictions, and remain a critical part of New Zealand\u2019s tax mix.<\/p>\n
Looking ahead, one point seems clear: the future for GST in New Zealand is likely to involve evolution, rather than revolution or extinction. It is extremely unlikely that New Zealand\u2019s tax system, at least over the next 50 years, will cease to include GST as a significant source of government revenue.<\/p>\n
As the economy changes, aspects of the GST system will inevitably need to be adjusted. Those adjustments, however, are more likely to refine the existing framework than fundamentally remake it.<\/p>\n
The prospect of another rate increase<\/p>\n
At a personal level, I consider another significant increase in the GST rate relatively unlikely. The political pressure against such an increase would make it difficult to secure the broad social acceptance required for the change to be implemented efficiently and effectively.\u00a0<\/p>\n
Keeping our broad base<\/p>\n
Like the likelihood of a significant increase in the rate of GST, it is unlikely that New Zealand will move away from a broad-based approach.\u00a0 Whether GST should be applied to food generally, or to specific types of food, have been raised on a semi-regular basis by various political parties.<\/p>\n
However, as seen from overseas experiences, this often creates tension around the boundaries and doesn\u2019t benefit anyone but tax advisors and lawyers.<\/p>\n
Keeping our broad base should remain an important consideration, with the continuation of government spending of the revenue going toward lower income earners (for example, benefit payments favour in GST).<\/p>\n
What is GST\u2019s job?<\/p>\n
It is important to remember the job we are asking GST to do, and to be careful about mixing that job with social policy objectives, such as changing people\u2019s behaviour. GST\u2019s primary role is to collect, as efficiently as possible, a significant amount of revenue based on private consumption in New Zealand. Although there are problems at the edges, by and large GST performs that role very well.\u00a0\u00a0 When other countries have tried to get their GST systems to also perform more social roles, there have been unintended consequences, additional complexity and boundary issues.<\/p>\n
Tax debt and the effectiveness of GST<\/p>\n
It would be remiss, however, not to comment on the rising level of tax debt in New Zealand, particularly in relation to GST and PAYE. Changes are needed to ensure that this debt is reduced rather than allowed to continue growing.<\/p>\n
Businesses will always move through different stages of their life cycles, and some business failures are inevitable. But if the Government becomes the \u201cfirst bank of last resort\u201d through the GST that businesses collect on behalf of Inland Revenue, there is a problem that needs to be addressed. We cannot allow the tax system to create \u201czombie companies\u201d that cause damage to the wider economy. If GST is to be regarded as working effectively, collection matters as much as the law itself and there needs to be a focus on early intervention as soon as there are late returns or missing payments.<\/p>\n
A more practical approach to apportionment<\/p>\n
One area of the GST legislation that could benefit from further attention is apportionment. Apportionment can generate wonderfully interesting technical discussions for those of us who love GST. It can also cause substantive confusion and friction for people operating in the real world.<\/p>\n
While simplicity has been an underlying fundamental concept of the GST Act, apportionment is one area where we are moving away into a more complex and complicated world. There is a risk that, in attempting to become overly precise, New Zealand\u2019s GST apportionment rules have lost an element of practicality and simplicity. It will always be difficult to design a single set of apportionment rules that works equally well for very large financial institutions and micro-businesses. However, a more principled, rather than more scheduled, approach may produce a better and more workable solution.\u00a0<\/p>\n
Making self-correction easier<\/p>\n
Another area requiring attention is the process by which taxpayers correct their own errors. Although there are some potentially positive moves in the current Bill, they may not go far enough.\u00a0 The legislation should make it simple and straightforward for taxpayers to correct a genuine mistake.<\/p>\n
There is questionable value in requiring taxpayers who have made an innocent mistake, and are trying to correct it, to complete a reasonably detailed process and provide significant information for Inland Revenue to review. Often, the taxpayer simply wants to correct a prior-period error in a current period and move forward.<\/p>\n
Greater flexibility to make current-period adjustments for innocent and reasonable prior-period errors would be positive.\u00a0 This may still require taxpayers to notify Inland Revenue that an adjustment has been made, perhaps by a tick box on the GST return. Inland Revenue could then review the adjustment where appropriate. The review process, however, should be risk-based rather than applied as a matter of course. This will become increasingly important given the potential growth in the volume of correspondence Inland Revenue may receive in an AI-enabled era. The question should be asked: where is Inland Revenue best to spend their limited resources from a NZ Inc perspective?<\/p>\n
A tax with a long future\u00a0<\/p>\n
Overall, GST has been a positive addition to the New Zealand tax mix. Internationally, it is also interesting that a number of countries continue to examine their tax mix and consider whether GST-type systems should be introduced or enhanced to improve economic outcomes.<\/p>\n
GST has now celebrated its 40th anniversary. It is entirely possible that it will also celebrate its 80th birthday in New Zealand.<\/p>\n
Overall thought<\/p>\n
Forty years after its introduction, GST remains one of the largest and most reliable sources of revenue, making up approximately 25% of the Government\u2019s tax revenue.\u00a0 While there has been a need for GST to evolve for a changing world, the core principles remain sound, allowing New Zealand to avoid many complex discussions around what sits on the borders of GST.<\/p>\n
Looking to the next forty years, GST will continue to evolve to factor in new ways of doing business, hopefully with a rewritten GST Act.<\/p>\n","protected":false},"excerpt":{"rendered":"By Allan Bullot \u00a0 Over the past 40 years, New Zealand\u2019s GST has evolved but the underlying concepts…\n","protected":false},"author":2,"featured_media":637416,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[111,43,139,69],"class_list":["post-637415","post","type-post","status-publish","format-standard","has-post-thumbnail","category-new-zealand","tag-new-zealand","tag-news","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/637415","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=637415"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/637415\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/637416"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=637415"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=637415"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=637415"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}