Tourism Operators Delighted With Tax Commitment

INBOUND TOUR OPERATORS COUNCIL OF NEW ZEALAND

MEDIA STATEMENT Tuesday 19 August 2008 For Immediate Release

Tourism Operators Delighted With National Party Commitment To Listen To Industry Concerns On $30 Million GST Rort

Inbound tourism operators are delighted with the National Party's commitment, announced by Shadow Finance Minister Bill English at their industry conference in Queenstown today, to listen to industry concerns about the Inland Revenue Department's decision not to honour formal, written GST agreements it signed with the industry in 2001 and instead seek $30 million of back taxes.

Speaking to the conference, Mr English said that while the IRD had to be independent from the Government, National was concerned about the growing tendency of the IRD "to change their mind and claw back taxes".

"We cannot maintain the integrity of the tax system ... if people cannot rely on written agreements," Mr English said.

He indicated he believed the issue should be resolved prior to the election but, if not, "National would be ready with a listening ear".

ITOC President Brian Henderson said his members were thrilled that National was prepared to listen to the industry on the issue.

"The IRD's conduct towards our industry really has been appalling and all New Zealand taxpayers should be worried. Taxpayers must be able to rely on signed, written agreements with the IRD, but that appears no longer to be the case."

Mr Henderson explained that, in 2001, some members of the Inbound Tour Operators Council (ITOC) signed formal, written agreements with the IRD about the GST tax treatment of the fees they charge to overseas wholesalers for arranging tours.

The IRD advised in the formal, written agreements that the fees should be zero-rated, and the industry has followed this advice.

In 2008, however, seven years later, the IRD has advised the industry that it has changed its mind, apparently because it believes it made an error.

In a meeting with the industry last week, top IRD officials said they would not honour the formal, written agreements signed with the industry in 2001 and would now seek back taxes.

Around $50 million was initially at stake, although, in recognition that it is responsible for the situation, the IRD has decided to look back only two years, reducing the amount owed to around $30 million.

Mr Henderson says the situation is "unjust and outrageous" and risks jobs.

"Back taxes of $30 million would put some of our members out of business while others would be forced to operate from Australia or China," he said. "Kiwi jobs would be lost. The connection between tour operators and the country we are meant to be promoting would be broken."

Mr Henderson said that, when asked how it could be fair for the IRD to act unjustly and impose severe financial hardship on the industry, apparently because of its own error, IRD bosses said they could not answer the question, despite admitting that it was them who caused any confusion.

Mr Henderson said the issue goes well beyond the tourism industry.

"If we cannot rely on written agreements with the IRD then no New Zealand taxpayers can," he said. "What sort of tax system do we have when the IRD can impose massive, retrospective and arbitrary back taxes because - by its admission - it may have made an error?"

Tourism Minister Damien O'Connor also addressed the conference but received a frosty reception when he criticised the tourism industry for raising the issue through the media. Mr O'Connor claimed the industry was exaggerating the likely cost to operators from the IRD u-turn but nevertheless said he would keep working to address the issue.

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