Inland Revenue needs to acknowledge that over-charging KiwiSaver members tax is a bigger problem than some not paying enough, one adviser says.
It was revealed this week that IRD had determined 450,000 people were paying the wrong rate of tax on their KiwiSaver accounts and other managed funds.
It had written to at least 120,000 taxpayers, some of whom said they were being given bills of hundreds of dollars a year.
It said it would not pursue people for underpayment in previous years, not refund overpayment.
Its new computer systems meant it could more easily see what tax rate should be applied to PIE investments.
KiwiSaver tax is an issue that has been highlighted by AFA John Cliffe, who headed a group that wrote an open letter last year outlining major problems with the retirement savings scheme.
One issue highlighted by the letter was the fact that people who enter a default KiwiSaver scheme are assigned a tax rate of 28%, even though they might be meant to pay only 10.5% or 17.5%, depending on their income in the prior year.
The letter noted that while the IRD supplied default KiwiSaver funds with default members' account details, it did not give them the tax rate. Unless a fund was able to confirm it direct with the member, they were stuck on the maximum rate.
Cliffe said the IRD should be compelled to give tax rate information to KiwiSaver providers for all members.
He said the reason the IRD was backing away from seeking underpaid tax in previous years was probably because overpayment was more of an issue.
The IRD has been approached for comment on this point.
Cliffe's colleague, Rachelle Bland, has launched a petition "to fix KiwiSaver tax".
She said the major drawback with default enrolment was that there was nowhere on the form for an employee to enter their ta rate.
"Rather they get taxed at the highest rate of 28% until they advise their KiwiSaver provider otherwise. This can only happen after the end of the three month opt in period. To make matters worse, there is no way for overpaid tax to be refunded as KiwiSaver tax is a final tax."
She said it had been an issue since 2007 and the youngest, least financially aware members were the most affected.