Stiffer tax penalties after GST in Oct.

Press, 8 February 1986, Page 9

Stiffer tax penalties after GST in Oct.

Stiffer penalties for tax evasion will be introduced after income tax rates are cut in October. The Minister of Finance, Mr Douglas, indicated the sterner penalties yesterday as a further step in the Government’s drive to make the tax system fairer. High marginal rates were the fundamental problem of the tax system but the October reforms were seen by most people as fair and would restore respect for the tax laws, he said.

Every genuine taxpayer would be better off after the October reforms which would more than compensate for the extra costs imposed by the goods and services tax, Mr Douglas said.

The new scales would mean virtually every taxpayer would be on a marginal tax rate of 48 cents in the dollar or less, he told the 1986 summer

school of the Society of Accountants in Christchurch. “We are creating a structure which is fair, so tax evasion should no longer be tolerated by anybody in the community, and the Government will legislate for stiffer penalties for tax evasion. “For every tax dollar which someone does not pay some other law-abid-ing citizen has to make up the difference,” Mr Douglas said. It was estimated that only about 6300 households would pay a tax rate higher than 48 cents. Mr Douglas predicted that lower marginal tax rates would change the psychology of investment because they would make earning income more important than avoiding tax.

The present system meant people looked to minimise their tax liabil-

ity by diverting income into non-taxable areas, especially into capital gains type of investment. Lower rates, and the introduction of an imputation system tor company taxation in two years time, would encourage investing for income, rather than tax avoidance, and retention of earnings by companies, rather than distribution through dividends, he said. Mr Douglas said changes to the taxation of livestock and capital. expenditure on land-based industries would lead to a better investment climate for farming for profit.

The Government had an open mind on arrangements for introduction of these reforms, which will be worked out in consultation with interested groups.

Mr Douglas predicted that the goods and services tax would not be removed by a National

Government, in spite of National’s pledge to do so when next elected to power. The pledge should be seen as “a political gesture and not as practical achievable policy.” It would be almost impossible for National to justify the waste of all the time, energy and money spent by the Labour Government and the community to implement GST.

As well, National would need immediate and substantial alternative sources of revenue or expenditure savings to replace the income from GST, Mr Douglas said. Fear and uncertainty about the new tax would diminish as GST became better understood.

"My advice, as a political!, is that the possibility of GST being dismantled in the near future can be safely discounted,” he said.