Smith Lockwood: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
Smith Lockwood: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
[Volume:644;Page:13713] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 Part 2 as I mentioned when we were heading towards closure last night covers the amendments to the Tax Administration Act 1994. The main set of issues in Part 2 in respect of that Act relates to compliance and this is obviously very important because New Zealand’s tax system relies on voluntary compliance. We do not have a huge army of inspectors out there going around inspecting all employers to see that they are complying with our income tax requirements in relation to PAYE or to our GST requirements. As a PAYE taxpayer and a GST taxpayer I do my own returns. One does get checked from time to time but the system essentially relies on voluntary compliance and therefore on a certain amount of goodwill because it is impossible to check every taxpayer. That is where the provisions in Part 2 are so important. 
There are three clauses in Part 2 that in particular cause concern. The first of them I mentioned last night—and I will not go over it in full detail again this morning—is clause 184 “Unacceptable tax position”. I mentioned last night that in 2006 Parliament tried to fix this problem. Parliament accepted that the way in which the unacceptable tax position provisions were applied was unreasonable unfair and in fact did not lead to sensible voluntary compliance with our law. So in 2006 Parliament amended the law to try to give the commissioner the opportunity not to impose unacceptable tax position penalties on people where it was unreasonable. The net outcome of that was unsatisfactory. We did not succeed in 2006 in fixing up the unacceptable tax position provisions. So subsection (2) in clause 184(2) makes it very clear that GST and withholding tax payments will henceforth be excluded from unacceptable tax position provisions leaving only income tax in there and the thresholds are changed for income tax to try to make that a little more fair as well. 
But the key issue I was referring to last night is that clause 184(3) makes these new provisions come in from 1 April 2008. National is arguing that this is unreasonable. They should be backdated to when Parliament tried to fix the problem before. If we believe that in fact our effort to fix it in 2006 did not work we should fix it now and backdate it to when Parliament wanted the change. Parliament wanted the change in 2006 so the amendment I have tabled amends clause 184(3) to replace 1 April 2008 with 1 April 2006 to make this clarifying provision come in from when Parliament intended it should. 
I covered that in detail last night so I will go on to the next issue which relates to clause 188 “Reduction in penalty for voluntary disclosure of tax shortfall”. Again this is very important because as I said our system relies on voluntary compliance. Therefore it is really important that taxpayers when they realise they have done something wrong actually tell the Inland Revenue Department that they got it wrong that they disclose to the department they made a mistake and that they pay the additional tax required. That way we collect more revenue. It is really important that when people make these voluntary disclosures they do not get penalised for it because if they get excessively penalised for it they will not do it; they will try to cover up their mistakes and get away without paying the extra tax. 
The issue here is that clause 188 reduces the penalties for voluntary disclosure and that is good; we all agree with that. But again the provision is coming in from 17 May 2007 and all the professionals feel that again because we tried to deal with this unsatisfactorily in 2006 it should be backdated to when Parliament tried to fix this problem and failed. 
So there are two key clauses in relation to which Parliament tried to fix the problem last year and it is accepted that we failed because the legislation is back in the House now. We are actually trying to fix up what we tried to fix last year because when we tried to fix it last year it did not work. In the meantime people have been caught through the commissioner not applying the law in the way Parliament expected that the commissioner would. We expected the commissioner to do certain things but it did not happen. Hence I have put forward these two amendments to backdate these provisions to when Parliament intended that the change should happen.