Source: Radio New Zealand
MONDAY
The proposed change would allow the commissioner of Inland Revenue to set the rate. RNZ
The government is making changes that could mean Inland Revenue is able to change its use-of-money interest rates more quickly.
The change is included in the Taxation (Annual Rates for 2025-26, Compliance Simplification, and Remedial Measures) Bill.
Use of money interest applies to overdue and underpaid tax. Since mid-January the debit rate has been 8.97 percent and the credit rate, for people who overpay tax, has been 2.25 percent.
The debit rate peaked at 10.91 percent in 2023.
At the moment the rate is set by an order in council, a process that can take up to eight weeks.
The proposed change would allow the commissioner of Inland Revenue to set the rate, based on Reserve Bank data on average floating mortgage rates, plus 2.5 percent.
Deloitte tax partner Robyn Walker said the rate for underpayment had to be set at a level that made Inland Revenue “the bank of last resort” and as unappealing to owe money to as possible.
“That said, the increasing levels of tax debt is indicating that strategy may not be effective anymore.”
Tax Traders co-founder Josh Taylor said the planned change would be a positive step.
“The current system probably takes in practice about a four-month delay for a rate reset to move through the system.
“And you can appreciate in the current world environment we’re in, where things are quite dynamic, things can change quite quickly in four months. So the rate can almost be out of date by the time it’s changed.”
He said, when there was downward pressure on rates, and Inland Revenue was slow to move, taxpayers were exposed for longer to higher charges.
“So it’s just helping to align those incentives more closely with what’s happening in the market.
“Conversely, when rates are moving upwards, it may mean that Inland Revenue is a bit slow to increase their rates.
“The bad part of that is that from a tax-based perspective, not paying your tax to IRD starts to look a little cheaper for a while, and that’s also not good. It’s also not good for the country if there’s a bit of an incentive for people to not pay their tax because not paying your tax looks like a cheaper option.”
He said tax pooling, such as offered by Tax Traders, gave people a way to avoid the Inland Revenue debit rate.
“Most people that actually underpay their tax aren’t exposed to that 8.97 percent rate because the tax pooling industry is able to provide lower cost options for people.”
Walker agreed tax pooling was a way to avoid the rates.
“Tax Pooling is a NZ-unique and innovative process whereby tax pooling intermediaries are able to essentially form a market place for taxpayers who have underpaid or overpaid their tax to buy and sell tax payments. The intermediary ensures that both parties pay or receive a fairer rate of interest. In the interim, the tax is paid over to Inland Revenue, but it sits in a pool.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
