Administration Cost Impact
There will be administrative costs to Inland Revenue in respect of the preferred option. These are assessed below for each component of the preferred option.
Implementing personal tax changes
The estimated administration costs of implementing the changes to personal tax and the IETC through the PAYE option are:
| $ million | |||||
|---|---|---|---|---|---|
| 2008-09 | 2009-10 | 2010-11 | 2011-12 | 2012-13 & outyears | |
| Operating | 2.832 | 6.493 | 8.420 | 8.420 | 8.420 |
| Capital | 0.835 | 0.553 | - | - | - |
| Total (lower range) | 3.667 | 7.046 | 8.420 | 8.420 | 8.420 |
| Contingency (25%) | 0.917 | 1.762 | 2.110 | 2.110 | 2.110 |
| Total (upper range) | 4.584 | 8.808 | 10.530 | 10.530 | 10.530 |
Inland Revenue have indicated that they will need to revise their operating approach to the generation of personal tax summaries (PTS) to manage the work volume resulting from these changes. The proposed solution for this is to reduce the circumstances where a PTS is automatically generated, and Inland Revenue are comfortable that this approach will be manageable and will mitigate organisational risk.
Repealing R&D tax credit
Repealing the R&D tax credit will lead to administrative savings in the longer term. In the short-term, although the credit is to be repealed, administrative costs will still be incurred through the management of disputes, returns filing, processing and auditing. In addition, Inland Revenue anticipate that some claims may be brought forward to take advantage of the credit, increasing the volume of work, and posing staffing challenges. In addition, an evaluation programme of the credit will need to be refocused on the sole year of the tax credit's availability.
The savings from 2010/11 onwards derive from the resources that will no longer be required to process and audit R&D tax credit claims. However, a minor capital charge may apply for a number of years. Repealing the R&D tax credit is estimated to result in the following administrative savings:
| $ million | ||||||
|---|---|---|---|---|---|---|
| 2008-09 | 2009-10 | 2010-11 | 2011-12 | 2012-13 | 2013-14 & outyears | |
| Operating | - | - | (1.816) | (3.137) | (3.279) | (5.700) |
Implementing KiwiSaver changes
The administration costs of the KiwiSaver changes are estimated as follows:
| $ million | |||||
|---|---|---|---|---|---|
| 2008-09 | 2009-10 | 2010-11 | 2011-12 | 2012-13 & outyears | |
| Operating | 3.206 | 0.664 | 0.356 | 0.316 | 0.316 |
| Capital | 0.949 | 0.028 | - | - | - |
| Total (lower range) | 4.155 | 0.692 | 0.356 | 0.316 | 0.316 |
| Contingency (20%) | 0.831 | 0.138 | 0.071 | 0.063 | 0.063 |
| Total (upper range) | 4.986 | 0.830 | 0.427 | 0.379 | 0.379 |
The costs arise from dealing with an increased number of telephone calls and increased complexity in the processing of employer monthly schedules.
These estimates are in addition to the KiwiSaver legislative and remedial work already underway as a result of the July 2008 Tax Bill. These changes will need to be undertaken in conjunction with that work and timeframe. A contingency (20%) has been included to allow for any increased costs as a result of the tight schedule to implement these changes on top of a significant existing KiwiSaver workload.
Discontinuing the ETC will lead to further administrative savings in the longer term. In the short-term, administrative costs will still be incurred through employer enquiries, revenue assessments and account reviews. The savings from 2010/11 onwards derive from the resources that will no longer be required to manage and process the ETC including handling general enquiries and managing exceptions. However, a minor capital charge may apply for a number of years.
