Electricity tax decision will strip $24 million from provinces

News | 01 Mar 2017
The Electricity Networks Association (ENA) is deeply concerned about a draft Inland Revenue proposal to tax discounts returned to customers who are beneficial owners of their lines’ company.

Chief executive of the ENA, Graeme Peters, said the ENA has challenged the decision, “which we estimate will remove $24 million in discounts returned to customers each year”.

The tax change will affect nearly half a million consumers who are beneficiaries of trusts which own their local lines company.

“We acknowledge the right of Inland Revenue to review this long-standing issue but we strongly disagree with its draft conclusion that a rebate or discount should be taxed.”

Up to 15 members of the ENA currently return a rebate or discount to their beneficial customer owners. The mostly annual discount is applied to the most recent power invoice and often leads to a significant bill reduction when needed most, at the end of the year in the lead up to Christmas.

The total discount paid in 2015 summed to $86.7 million, which would be taxed at 28 percent if the Inland Revenue had its way.

Currently discounts are tax free but Inland Revenue wants to treat them as a distribution of profit or a dividend, which are taxed.

Lines companies are effectively returning money paid by their consumers through the year that was not needed, given there had been no significant repairs and maintenance requirements due to contingencies such as weather events or earthquakes.

The discount was not a commercial dividend and consumer-owned trusts were using exactly the same principle as large commercial firms which discount products using ‘cash backs’ for purchases and don’t get taxed on the cash back value, Mr Peters said.

“While ENA is concerned about the IR proposal, we are very disappointed by its reported comments that there is no impact on consumers because the transaction won’t be part of their individual tax returns.
“While this is technically correct, the tax will still have a significant impact because it lowers the amount they receive in the form of a discount or rebate.

“Though the tax will be paid on their behalf by the lines company, it is their consumer owners, most of whom are in provincial towns and rural areas, who will bear the brunt of the tax”.

Responding to a call for feedback, the ENA sent IR a well-researched, constructive submission on the proposed tax on February 28, 2017.

Consumers affected by the tax decision are in Northland (North Power and Top Energy), Counties (Counties Power), Waikato (WEL Networks and Waipa Networks), central Hawke’s Bay/Tararua (Certralines, Scanpower), West Coast (Westpower), top of the South Island (Network Tasman and Marlborough Lines), Canterbury (MainPower and EA Networks), North Otago (Network Waitaki), and Southland (the Power Company).