Chapter 3 - Moving to an improved tax administration
3.1 There are two broad options for reforming the tax administration. The first option, and the one the Government wants to progress, is to develop a new business model for Inland Revenue with stronger technology capabilities. This option means the dominant channel for communication with Inland Revenue would be electronic (with some exceptions) and reflects the increasing comfort people have in managing their personal and business matters online. The second option is to continue with the current administrative framework and technology, which will be increasingly costly and inefficient.
A new approach for Inland Revenue
3.2 Inland Revenue has started providing more electronic services to taxpayers. Over the next few years it will increase its focus on providing greater certainty and quicker responses through electronic channels. This approach will require substantial changes to Inland Revenue’s traditional interactions with taxpayers.
3.3 Under the proposed changes:
- Tax would be embedded in business processes. Information reporting and tax payments would be part of a businesses standard accounting processes rather than, as is currently the case, a separate process. For example, a GST package used by an accountant would be able to meet filing and paying obligations, without the business having to separately think about GST rules, due dates for payment and when they have to file a return. Inland Revenue would respond quickly to confirm the correct thing had been done.
- The way taxpayers send and receive information would change. Inland Revenue would build on increased public use of electronic services and online tools to send and receive more information electronically.
- Taxpayers would get help to get it right. Inland Revenue would require only the information needed to administer the tax system. This information would be provided electronically and not require manual intervention. The information would allow Inland Revenue to tailor its compliance activities and communication with taxpayers so they get the right information and quickly.
New and improved technology capabilities for Inland Revenue
3.4 The complexity and age of Inland Revenue’s computer systems are affecting performance, particularly as they have been being adapted for roles they were never intended to fulfil. This is affecting Inland Revenue’s ability to respond to taxpayers in a timely way. This can result in uncertainty for taxpayers in managing their tax affairs.
3.5 The Government has already made initial steps to improve Inland Revenue’s technological capability – for example, the technology being adopted to administer the new student loan system.
3.6 The new student loan system will:
- provide the flexibility needed to deliver policy changes to the scheme in a timely and cost-effective manner;
- improve customer service through more integrated delivery of services to borrowers, in conjunction with the Ministry of Social Development;
- enhance online services, increasing borrowers’ ability, particularly overseas-based borrowers, to self-manage their loan account; and
- allow administrative resources to be used more effectively.
3.7 Under the proposed changes to the tax administration system, it is expected this type of technology will be used more widely by Inland Revenue to improve the timeliness and certainty of taxpayer services.
3.8 However, just as the introduction of GST required businesses to change their processes, and resulted in benefits for businesses such as better and more regular financial information, reform of the tax administration system can only be achieved when sufficient individuals and businesses move to an electronic environment.
Questions for submitters
Submissions on any of the issues outlined in this chapter are welcomed, including whether the outlined reform is the right direction for the Government and Inland Revenue to proceed.