Describing it as a “tax amnesty”, Finance minister Mark Brown says businesses and individuals must front up at the Inland Revenue Department in order to gain the benefit. They will have five months to settle outstanding issues and get their tax affairs in order beginning on August 1. The amnesty will end on December 31.
Brown says government has made a commitment to waive any additional tax imposed on companies and individuals, but they will still be obliged to pay any core tax owing to the IRD.
Any penal tax imposed will not qualify to be written-off during the amnesty, and neither will any fines imposed by the High Court for tax offences.
Browne says any person or company who has previously failed to declare any income will be able to do this during the five-month amnesty without any fear of being prosecuted. The IRD confirmed companies registered as foreign enterprises would not be treated any differently to local businesses.
Under a tax information exchange agreement with several other countries, the IRD has been collecting information since January this year on Cook Islands entities that may hold funds in any offshore accounts, says Browne.
Similarly, the Cook Islands will make tax information available to other countries when the agreement comes into full effect January 1, 2018. Browne warned that there will be a 20 per cent penalty on top of any undeclared income, as part of the tax department’s clampdown on earnings kept overseas and not declared here.
Browne also announced a slight reduction in income tax for individual earnings, part of a tax reform initiated three years ago.
Tax on earnings from $11,000 to $30,000 will come down by half a per cent to 17 per cent. Tax on earnings of $30,000 to $80,000 will also be reduced by half a per cent to 27 per cent.
Browne says the government wanted to make the tax announcements early so businesses and individuals can prepare to take advantage of the chance to clear outstanding tax issues and the waiving of penalties imposed on some of their taxes.
He sees it as an “incentive for people to come in (to IRD) and be in a position to settle their core taxes and focus on moving forward with their businesses rather than being stuck in this position that a lot of them are in now.”
A 20-year-old turnover tax debt of $750,000 which the IRD has little expectation of ever collecting, will also be written off.
The IRD estimates around $17 million is owed in additional taxes and the five-month tax amnesty is expected to lose government around $2 million in tax revenues.
“So yes, I do expect to see a surge in settlements of core tax to offset that $2 million dip,” says Brown.
“But any revenue gained from settlement of outstanding core tax isn’t being factored in as expected revenue for government. It will be more of a windfall if it does happen.”
Financial secretary Garth Henderson says the Ministry of Finance and Economic Management will invest more money in “outreach programmes” to
provide assistance to people to meet their tax obligations, rather than leaving it until they get into trouble and having to go through a legal process of recovery.
“Increasing compliance is the way to go,” he added.
Brown says government doesn’t expect to initiate another tax amnesty and the benefits of having taxpayers more compliant will result in economic growth.
“This will happen by making sure our people in the private sector, and individuals, are given the best opportunity to move forward from this current (non-compliant) situation that many of them are in now.”