We accept that there needs to be some penalty regime as penalties play an important role in ensuring that taxpayers, including withholding agents, have an incentive to comply with their tax obligations. However, imposing a penalty on a conveyancing agent that is based on a percentage of the unpaid RLWT would seem unduly harsh. The conveyancing agent is merely an intermediary in the process of collecting RLWT. The penalties may be disproportionate to the level of offending and may vary based on the underlying RLWT rather than the offending conduct. Comment The level of a penalty should be commensurate to the level of offending in order to prevent perverse incentives from arising. In the context of RLWT, there will generally be more pressure on the RLWT agent not to withhold when the amount of RLWT to be withheld is large (for example, $100,000) compared with a small amount (for example, $1,000). This is because there may be more to gain when there are large amounts at stake. The role of a variable penalty is to diminish this effect by introducing an equivalent downside to not fulfilling their obligations. A penalty would generally have a greater effect on incentivising RLWT agents to withhold and pay RLWT when the amount of RLWT is small (for example, the penalty is $200 when the amount of RLWT is $1,000), but will generally not have the same effect when the amount of RLWT is much larger (for example, the same $200 penalty when the amount of RLWT is $100,000). Withholding taxes normally make the withholding agent jointly and severally liable for the amount of withholding tax, which substantially diminishes the incentive not to withhold. This is not a feature of the proposed RLWT, so variable penalties will play a key role in incentivising RLWT agents to correctly withhold when there are large amounts of funds at stake. Recommendation That the submission be declined. No clause Issue: Assistance for RLWT agents Submission (Auckland District Law Society) Will there be dedicated resources within Inland Revenue to provide support to paying agents who are making assessments and require assistance? In addition, there are several problem scenarios that require addressing before the RLWT comes into effect. What happens if there are joint vendors and only one vendor is an offshore person?
We accept that there needs to be some penalty regime as penalties play an important role in ensuring that taxpayers, including withholding agents, have an incentive to comply with their tax obligations. However, imposing a penalty on a conveyancing agent that is based on a percentage of the unpaid RLWT would seem unduly harsh. The conveyancing agent is merely an intermediary in the process of collecting RLWT. The penalties may be disproportionate to the level of offending and may vary based on the underlying RLWT rather than the offending conduct. Comment The level of a penalty should be commensurate to the level of offending in order to prevent perverse incentives from arising. In the context of RLWT, there will generally be more pressure on the RLWT agent not to withhold when the amount of RLWT to be withheld is large (for example, $100,000) compared with a small amount (for example, $1,000). This is because there may be more to gain when there are large amounts at stake. The role of a variable penalty is to diminish this effect by introducing an equivalent downside to not fulfilling their obligations. A penalty would generally have a greater effect on incentivising RLWT agents to withhold and pay RLWT when the amount of RLWT is small (for example, the penalty is $200 when the amount of RLWT is $1,000), but will generally not have the same effect when the amount of RLWT is much larger (for example, the same $200 penalty when the amount of RLWT is $100,000). Withholding taxes normally make the withholding agent jointly and severally liable for the amount of withholding tax, which substantially diminishes the incentive not to withhold. This is not a feature of the proposed RLWT, so variable penalties will play a key role in incentivising RLWT agents to correctly withhold when there are large amounts of funds at stake. Recommendation That the submission be declined. No clause Issue: Assistance for RLWT agents Submission (Auckland District Law Society) Will there be dedicated resources within Inland Revenue to provide support to paying agents who are making assessments and require assistance? In addition, there are several problem scenarios that require addressing before the RLWT comes into effect. What happens if there are joint vendors and only one vendor is an offshore person?
2016-or-rlwtgstossl.docx