Sunday, May 8, 2011

Tax collection - its all in the interpretation

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Do you happen to think the tax office has too much power? Well, you would be right for a number of reasons:
1. Legal extortion: The tax office actually has the 'near' unlimited resources to spend on tax policy or 'precedent', whilst you, as a taxpayer are constrained (in most cases) with minimal resources, and a desire to seek redress for just your case. Doesn't it seem like an unlevel playing field? Well, you ought to be more anxious than you know. The implication is that for a minor expense of say $5000, you might need to fight your case to the High Court, which might cost you $500,000. Oh, and tax payers will probably pay $5mil. The bureaucracy are happy, because they just made the state $300mil a year (my guesstimate) in additional revenue.
2. Arbitrary powers: The power for the tax office to extort more money from business and individuals is a very arbitrary matter. The reason is that many moons ago, common law was supplanted by statutory law. Now, common law is rather commonsensical, whereas statutory law is 'ok' on a good day (when its enacted), but it quickly turns to quicksand in the interpretation. The reason is that, unlike common law, which actually has a context established by its framework tied to fact, statutory law has no framework, so policies are only inclined to ensure its correspondence to their existing policy. i.e. Rationalism. The implication is that one bad law begets another bad law, after business finds loopholes, or the judiciary is forced to interpret bad law.

Here we have an example of the arbitrary powers of NZ Internal Revenue. It was probably asked by the government to find more revenue. The reason is that the NZ govt is between a rock and a hard place. Its an election year, and the government has a non-performing treasury dept. It needs money and it is reluctant to cut spending, even if the polls suggest its ok. Well, of course they will do that after the election. In the meantime, the tax office is after cash.

Here we have NZ Internal Revenue arguing that you cannot claim deductions for software development which is unsuccessful; the argument being being that unsuccessful development does not lead to revenue. This is silly policy because:
1. The development is undertaken with the intent of making a profit. If this principle is not retained, then capital losses would seek to be deductions, as well as a great many other expenses and losses.
2. The policy is not consistent with other laws, or even other countries.

Frankly, I think the tax office cannot reasonably expect such an interpretation to stick. The business community will lobby against it. Why would the tax office do this then? I would suggest the NZ government is engaging in some creative accounting of its own. With an election in one year, a budget due before then, the NZ government will use the law as the basis for its budget, and then after it has benefited from it, it will reverse the decision. Its the public sector equivalent of a corporation making a provision for some contingent liability....except its contemptibly dishonest. Sounds like government, our moral authorities, doesn't it? They are fictitiously creating revenue that they have no desire to collect, lest they upset their constituency.

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