New Zealand Law Society - Law Society seeks improvements to Taxation Principles Reporting Bill

Law Society seeks improvements to Taxation Principles Reporting Bill

The Law Society appeared before the Finance and Expenditure Select Committee on 15 June to present its submission on the Taxation Principles Reporting Bill. Neil Russ, Convenor of the Tax Law Committee, outlined several significant issues with the Bill, including the failure to follow the Generic Tax Policy Process (GTPP) and the truncated select committee process.

The GTPP has operated since 1994 and is the widely accepted process for the development of tax policy. It emphasises early, informed consultation with the public and stakeholders. The Law Society has become concerned with the failure to return to the GTPP following the disruptions of COVID-19. Despite the Bill being announced over one year ago, virtually no consultation took place throughout its development. The failure to follow GTPP has led to deficits in the drafting of the Bill, and a lack of consensus around what are intended to be ‘widely accepted’ tax principles.

In addition to process concerns, the Law Society raised several substantive issues with the Bill:

  • Clause 8 of the Bill currently limits the justiciability of the Commissioner’s reports and the Bill, which may inappropriately place the Commissioner’s powers and responsibilities outside of the reach of the courts. This is particularly concerning given the Bill will enable the use of information-gathering powers for the purposes of reporting. If not removed, the clause should clarify that it does not affect the right of a person to seek judicial review in respect of any matter to which the Bill relates.  
  • The Bill will become a revenue Act, enabling the Commissioner to exercise information gathering powers under the Tax Administration Act 1994. This is the further extension of the Commissioner’s information gathering powers, with few limitations as to when the power can be exercised, or how the information can be used. The Law Society recommends the Commissioner be required to use information already held or – if this approach is not taken – is required to hold the information collected only in an aggregated and anonymised form, and is not permitted to use the information for any other purpose.
  • The tax principles are accompanied by descriptors, which are not articulated in objective or politically neutral language. Further public consultation should be undertaken around which principles are contained in the Bill, and how they are described.
  • Similarly, the tax principles measurements contained in clause 13 lack certainty. This impacts taxpayers’ understanding of whether and what information may be required of them (and this may change regularly). The Commissioner can add to the measurements very simply and without oversight, meaning they are a simple vehicle by which to expand the scope and effect of the Bill, without any protection against politicisation.
  • Clause 14 of the Bill allows the Commissioner to add to the tax principles measurements without consultation or oversight by Parliament. Such changes are specifically stated not to be secondary legislation. As currently drafted, clause 14 also provides a ‘Henry VIII’ power, by which the Commissioner can remove measures from clause 13, being those approved by Parliament. While likely an oversight, this is an inappropriate delegation of Parliament’s law-making powers for a non-essential purpose, and must be corrected.

The Law Society is supportive of initiatives to increase transparency and improve tax literacy, however the nature of these concerns is such that it recommends the Bill does not proceed.