Evaluation of the New Zealand Income Tax Law Rewrite Project from a Compliance Cost Perspective

Abstract

In the mid 1990s, New Zealand began a project to rewrite the country’s income tax legislation. The first step of the rewrite was to reorder and reenact the 1976 Income Tax Act as the Income Tax Act 1994. Although the rewrite attempted clarify and simplify the legislation to make it more accessible, it was only partly successful at this task. While the use of plain language and ordinary usage is a good start, there are other factors that cause difficulty. These include terminology not readily understood by the layman, complex interpretation provisions that act to disassemble single rules into multiple and separate provisions, and a proclivity to rephrase rules as definitions. The Act also moves from a regime-by-regime organisation to a more unusual functional organisation, which is less intuitive and much harder for the taxpayer to use. If a taxpayer wants to discover how a particular regime applies to them, they are no longer able to find it set out in a single part of the Act, but scattered among parts dealing generally with receipts, expenses, and timing, to mention only the most obvious. A number of things could be done to improve the usability of the new Act.

Keywords: Income Tax, Income Tax Act 1994, Rewrite Project, Regime-by-Regime Organisation, Functional Organisation

JEL Classification: K34