New Zealand Law Society - Concerns about tax policy development and the quality of tax legislation highlighted to Minister

Concerns about tax policy development and the quality of tax legislation highlighted to Minister

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The New Zealand Law Society | Te Kāhui Ture o Aotearoa has raised concerns about the effectiveness of tax policy development and quality of tax legislation. Following engagement with Inland Revenue officials, the Law Society recently wrote to Minister Parker, as Minister of Revenue and Attorney-General, urging a return to the Generic Tax Policy Process. The Minister’s response is here.

Over the course of the past year, the Law Society’s Tax Law Committee has been working collaboratively with Inland Revenue officials and other key stakeholders to address rapidly evolving tax operational and policy issues. While this collaboration has helped support the resilience of New Zealand’s tax policy settings during COVID-19, the pandemic has exacerbated long-standing issues about the way tax policy is developed and the quality of subsequent tax legislation.

The Law Society is concerned that the use of urgency to pass tax legislation has recently given rise to significant constitutional and legislative quality concerns and highlights a failure to observe the Generic Tax Policy Process (GTTP). The GTPP is a process, in place since 1995, “designed to ensure better, more effective tax policy development through early consideration of all aspects – and likely impacts – of proposals, and increased opportunities for public consultation”. The Law Society noted that the emerging new ‘normal’ approach to consultation by Inland Revenue – proposals for tax reform released on a confidential basis, at short notice, and limited to specific stakeholders – is often resulting in tax law that is less effective and workable, increasing the need for subsequent remedial reforms.

A recent example is the trust information disclosure rules introduced in the Taxation (Income Tax Rate and Other Amendments) Bill and enacted under urgency in December 2020 without prior notification to stakeholders and without public consultation. This change resulted in legislative overreach, inadvertently targeting trusts outside the intended scope of the measures, and a need for immediate remedial legislation to bring the law back into line with intended policy.

The Law Society has also raised concerns about the use of Supplementary Order Papers (SOPs) to introduce substantive amendments to proposed tax legislation. The previous presumption against the frequent use of SOPs appears to have shifted, with a growing trend to routinely use SOPs to introduce new reforms, often late in the tax development process and without an opportunity for external scrutiny and constructive comment. Consequently, the Law Society is concerned that tax law is being developed in a piecemeal way, compounding the need for a growing stack of ‘remedials’ and causing unintended consequences.

The Law Society has urged a return as soon as practicable to the use of the long-standing GTPP as the preferred framework for developing tax policy and legislation and requested a meeting with Minister Parker to discuss the concerns.

We will continue to engage with Inland Revenue and advocate for due process and quality legislation, in line with the Law Society’s statutory mandate on behalf of the legal profession and in the public interest.