Options Revenue Sustainability of Fairness and equity Efficiency of compliance and administration tax system 1. Status quo Not met Not met Not met No impact Some contractors are not Contractors not subject to withholding have to Some employers and paying their fair share of manage their own tax obligations. Contractors contractors are tax and are claiming social subject to withholding face inflexible rules and structuring to policy benefits they are not are not given effective tools to self-manage. the rules and avoid entitled to. paying their fair Does not decrease compliance costs for payers share of tax. Contractors and employees (unlike options 2 and 3). are often doing very similar work, yet have Higher processing and enforcement for very different rules apply Inland Revenue. to them. 2. Electing Met Met No impact The measure is expected own to have an initial upfront withholding Contractors in the Contractors that are subject to withholding will fiscal cost of rate schedular payment rules be more flexibility to pick the correct rate of approximately $54 million are currently generally withholding. Their compliance costs will (of which $19 million is over-deducted from decrease as they will not have to apply for a recovered in following resulting in a cash-flow special tax code to change their rate of two years). cost to them that other withholding and therefore can more easily get contractors do not have. their tax obligations right from the start. This upfront cost arises primarily because the This change will make it Payers of contractors may have an increase in majority of contractors in easier for them to have the compliance as they will have to more the schedular payment correct amount deducted. frequently change withholding rates. However, rules are currently this is expected to be small and outweighed by and receive a tax the decrease in compliance costs for contractors. refund in the following year. This Inland Revenue will have less administration provides a from administering special tax code one year fiscal benefit to applications and end of year tax bills and the government. The refunds. proposal is expected to
Options Fairness and equity Efficiency of compliance and administration Sustainability of tax system Revenue 1. Status quo Not met Some contractors are not paying their fair share of tax and are claiming social policy benefits they are not entitled to. Contractors and employees are often doing very similar work, yet have very different rules apply to them. Not met Contractors not subject to withholding have to manage their own tax obligations. Contractors subject to withholding face inflexible rules and are not given effective tools to self-manage. Does not decrease compliance costs for payers (unlike options 2 and 3). Higher processing and enforcement for Inland Revenue. Not met Some employers and contractors are structuring to the rules and avoid paying their fair share of tax. No impact 2. Electing own withholding rate Met Contractors in the schedular payment rules are currently generally over-deducted from resulting in a cash-flow cost to them that other contractors do not have. This change will make it easier for them to have the correct amount deducted. Met Contractors that are subject to withholding will be more flexibility to pick the correct rate of withholding. Their compliance costs will decrease as they will not have to apply for a special tax code to change their rate of withholding and therefore can more easily get their tax obligations right from the start. Payers of contractors may have an increase in compliance as they will have to more frequently change withholding rates. However, this is expected to be small and outweighed by the decrease in compliance costs for contractors. Inland Revenue will have less administration from administering special tax code applications and end of year tax bills and refunds. No impact The measure is expected to have an initial upfront fiscal cost of approximately $54 million (of which $19 million is recovered in following two years). This upfront cost arises primarily because the majority of contractors in the schedular payment rules are currently and receive a tax refund in the following year. This provides a one year fiscal benefit to the government. The proposal is expected to
2016-ris-bteirm-bill-4.docx