U.S. Tax Model Proposed for NZ

New Zealand may need to adopt the U.S. taxation model if changes proposed by the IRD are progressed according to a leading local expert.

The changes which were outlined in an IRD consultation paper which indicates all individual earners with an IRD number we be required to assess their tax position annually. The move will be facilitated by pre-populating tax returns with existing data held by the IRD and other sources.

Under the new scheme an additional 1.6 million Kiwis will be expected to file tax returns each year.

CEO of MyTax.co.nz Lester Binns says the IRD’s vision to overhaul the current tax system has the potential to increase the accuracy of taxation significantly, and will rely on a high level of uptake of filing tax returns online.

Binns says in order to accommodate the changes, New Zealand will need to move to a U.S. model where the IRD acts as an information wholesaler, and individual taxpayers do not have direct communication with the organisation - instead working through retailers.

“In the U.S., only a small proportion of the public deal directly with the tax department. Instead, third party tax agents act as intermediaries, preparing and filing tax returns on behalf of millions of taxpayers. As a result, around 80% of returns are filed electronically,” he says.

This use of third party taxation experts will also mean there is no burden on the IRD’s helpdesk, which otherwise could see millions of dollars outlaid in customer support services for those filing tax returns for the first time.

“At a cost of around $40 per call to the help desk, millions of dollars can be saved by developing a network of personal tax agents who service the interaction with individuals.

Binns says the new system would also need to accommodate a number of individuals who may struggle to complete an online return such as the elderly or those with learning disabilities.