Smith Lockwood: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Instruction to Committee In Committee 
Smith Lockwood: Taxation (Depreciation Payment Dates Alignment FBT and Miscellaneous Provisions) Bill — Instruction to Committee In Committee 
[Volume:630;Page:2027] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 In debating Part 3 I hope the Minister will talk about at least part of his Supplementary Order Paper 19. When the Finance and Expenditure Committee was hearing submissions and considering this bill one of the clauses in Part 3 brought up an issue that at least the National members and I must say Gordon Copeland also from United Future became quite focused on. I think it was clause 180 in Part 3 that really gave rise to the issue because that clause inserts new section 141EA. 
Various bits of section 141 cover issues as I understand it relating to what is commonly called an unacceptable tax position. It sounds pretty weird to talk about an “unacceptable tax position” but let me explain what that means. Under current law if a taxpayer let us say a GST-registered business files a tax return but the business makes a mistake but then finds it has made a mistake and corrects the mistake and in fact pays the correct amount of tax to the Inland Revenue Department by due date that business because it originally filed a return that contained an unacceptable tax position can still be penalised. 
The select committee’s commentary on the bill points out that the penalties can be quite severe—that is the lesser of either 1 percent of the total tax figure or a quarter of a million dollars. So where there is a lot of tax involved this kind of unacceptable tax position could result in a penalty of up to a quarter of a million dollars even though the business had told the department that the business got it wrong and paid the correct amount of tax by due date. Under current law the department does not have the power to say: “OK we accept that you told us wrongly but you fixed it up and paid the right amount of tax so that’s the end of the matter.” Under current law the business involved is subject to “unacceptable tax position” shortfall penalties. 
 Certainly the National members of the Finance and Expenditure Committee believe that that was totally unacceptable. Our tax system depends on taxpayers of all kinds being honest with the Inland Revenue Department. Our tax system requires voluntary compliance. Sure the law is there but the department cannot go around checking that everyone has complied with the law. It requires goodwill and an acceptance by taxpayers that they will comply with our law. Where taxpayers come along and say: “Look I got this wrong.” and pay the correct amount of tax by the due date we should not be penalising them because they are being upfront and honest. It is really important that we do not penalise them when that is the case. 
I congratulate the Minister on bringing in the Supplementary Order Paper to alleviate this problem but I want to be sure that businesses can be satisfied that the problem is dealt with. As I read the Minister’s amendment it looks to me like it is the new clause 180B in Supplementary Order Paper 19 which inserts new section 141KB “Discretion to cancel some shortfall penalties” that is the appropriate provision. As I read the Supplementary Order Paper it gives the commissioner a lot of discretion about whether a business will be excused a shortfall penalty for having taken what is technically an unacceptable tax position. 
What I would like the Minister to make clear for us is if a business acknowledges its mistake and pays the correct amount of tax by due date whether the Minister would no longer have discretion in that case and the business would be absolutely assured of no tax penalty. I will continue for just a moment while the Minister in the chair the Hon Peter Dunne consults his officials. What I am trying to get clear is that although there may be some circumstances in which I can understand reference to the discretion of the commissioner is often a sensible way to draft the law I want to ensure that the Supplementary Order Paper delivers for a business that advises of the mistake corrects the mistake and pays the correct amount of tax by due date and that it will not be subject to a discretionary decision that it should still be penalised. I want to ensure that this Supplementary Order Paper gives businesses absolute certainty that if they go through those steps and pay the correct amount of tax by due date there is no discretion whereby they might still be penalised—that they have absolute certainty that they will not be penalised if they do those things. There may still be a necessity for the commissioner to have discretion around circumstances that are not as clear-cut as that but I want to be absolutely certain about the Supplementary Order Paper provisions because the select committee has not had a chance to hear submissions on them. 
I appreciate the Minister’s acknowledging that and I appreciate his bringing in the Supplementary Order Paper because we argued strongly with his officials about this matter. I acknowledge that the Minister’s colleague Gordon Copeland was very supportive of this effort. We argued strongly with the officials that we want this provision to deliver certainty to businesses that if they acknowledge the mistake correct the mistake and pay their due tax there will be no discretion about whether they are free of penalty—they will be free of penalty in those circumstances. If the Minister could confirm that absolutely for us I think it would give us a degree of comfort in relation to Supplementary Order Paper 19 which we have not been able to hear submissions on.