Income tax system in New Zealand

In New Zealand, individual wage and salary earners are taxed each period under the PAYE system. The marginal tax rate starts from 10.5% for income up to $14,000 to 33% for income greater than $70,000. Company tax rate is fixed at 28%. This means that for individuals, the more you earn the more tax you have to pay.

Pros

• Revenue from income tax is one of the most important sources of revenue for the government.
• Because the purpose of the income tax is taxed on people income, the poor will not bear the same burden of income tax as the rich. The poor will be better off with income tax as they will have lower income, resulting a lower tax paid.

   Cons

• Sometimes, people will be discouraged from working more because they have to pay more taxes on the additional income that they earn. Thus, it decreases productivity in the economy.
• Because of the high tax rate, people are trying reduce the tax paid by entering some avoidance and evasion scheme. It reduces the integrity of the tax system. Moreover, Commissioner has to increase more expenditure to protect the tax system from those schemes and increase compliance from taxpayers. 

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