New Zealand's Banks Consider Taking On Tax Collection Role

by Mary Swire, Tax-news.com, Hong Kong

10 May 2001

New Zealand's leading banks are debating whether or not to agree to the government's recent proposals requiring the banks to collect more tax from their small business account holders. They have not yet reached a decision because they say they have yet to assess how costly it will be for them to collect the additional tax. WestpacTrust spokesman Peter Thornbury told the New Zealand press: 'We're definitely interested, but we have to look at the details further. Until we do that, we don't know what the (cost) implications will be.'

The new proposals have placed the banks in the same position that they found themselves in nearly ten years ago when many defied new regulations that called upon the banks to collect withholding tax on interest paid to customers' deposit accounts and forward it to the Inland Revenue Department. At the time many banks claimed that they were becoming unpaid tax collectors because they had to pay for the costs involved.

Last week, Associate Revenue Minister Paul Swain and Undersecretary John Wright, released a document detailing a raft of proposals for cutting the current tax compliance expenses that burden small businesses among which were two key suggestions that would affect the country's banks. The first option requires the banks to automatically deduct an agreed percentage of small business account deposits and send the cash to the Inland Revenue. The second option is that small businesses would group their provisional tax payments with other companies - a collective which would allow for underpayments to be offset against any overpayments. The banks' role would be to manage the scheme and administer interest rates.

New Zealand's small businesses are currently identified as companies with annual sales of up to NZ$1.3 million. The general response to the document is that the government is correct to focus on the needs of the country's small businesses. Over 95 per cent of employers have less than 20 workers and 84 per cent employ less than 5 workers. 'For this reason,' said Messrs Swain and Wright, 'high compliance costs are a serious concern to the government. Reducing these costs for small businesses will help them to increase their productivity and effectiveness. We want business people to have more time for doing what they do best - running their businesses.'

Recommended