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Tax System Under Pressure From Top Earners Avoiding Tax

Fuseworks Media
Fuseworks Media

Wellington, Dec 8 NZPA - The tax system is under pressure from those seeking to avoid paying higher tax rates, the Inland Revenue Department said today.

The department's briefing to incoming minister Peter Dunne said revenue collection remained "robust" and the overall system was operating well.

"Nevertheless, there are some growing pressures. None of these should be viewed as a matter of alarm," IRD said.

How much tax people paid was dependent on how the income was earned and how they structured their affairs.

"There is ample evidence that people are using different entities to structure their affairs in ways which reduce their tax liabilities."

There was also considerable uncertainty among business around what was and was not tax avoidance

"It can create a mentality that rather than tax being something which is paid for by all, tax is something for the smart, the able and the well advised to avoid. Over time, this can erode confidence that the tax system is fair."

The briefing pointed to the increasing use by individuals of companies and trusts to shelter income from the highest rate of personal tax.

IRD said the Government had to make some fundamental decisions about the tax system, all of which flowed on from setting the company rate and then aligning closely as possible the top rates of all other taxes.

Other options were possible, but this was the simplest.

Like Treasury it suggested as income was lost from aligning the rates GST could be increased to make up the losses.

Finance Minister Bill English has already ruled out an increase in GST.

Mr Dunne said his personal view was aligning the top rates at 30 percent.

"I believe there is scope for achieving these remaining tax reductions, despite our present financial uncertainty," Mr Dunne said.

The department also said it was under pressure due to the number of non-tax policies -- such as KiwiSaver, Working for Families, child support, student loans and paid parental leave -- it had to administer.

Mr Dunne said the department was looking at ways of equipping its staff and to deliver better values from money and be more responsive.

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