As the amount of money in KiwiSaver grows, how it is taxed will become a more pressing issue.

KiwiSaver members copped a $166 million tax bill on their $40 billion in investments over the past year – and it's being held up as an example of New Zealand's unfair tax system.

Data from the Financial Markets Authority shows default members paid $25.4m and those who had made an active fund choice $140.8m, in the year to March 31.

The total tax bill is about equal to what is paid by all the property investors in the country, who have about half-a-million rental properties between them.

Peter Neilson, former chief executive of the Financial Services Council (FSC), said people who invested in long-term savings vehicles were harshly taxed under the New Zealand system.

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He said work had shown that the effective tax rate on KiwiSaver for a person with a 33 per cent tax rate was 54 per cent.

The same person with a 6 per cent return on investment property would have an effective tax rate of 1 per cent.

"People who save using either a KiwiSaver conservative fund, which default funds are, or a bank term deposit are paying the highest effective tax rates in the country."

Simplicity founder Sam Stubbs agreed KiwiSaver was taxed "relatively highly". Most other countries did not charge tax on superannuation savings schemes, he said.

Stubbs said as the amount of money in KiwiSaver grew, how it was taxed would become a much more pressing issue for government to consider.

Tax consultant Terry Baucher said KiwiSaver was being taxed as if it was a short-term savings plan.

But the effect of compounding over time increases savers' tax bill. When tax is levied each year on on returns, it means only after-tax returns compound each year.

But when tax is only applied when an asset is finally sold, the gains build up more quickly.

"Long-term savers are certainly disadvantaged relative to other asset classes."

Baucher said a capital gains tax could go some way to improve fairness between the types of investment classes but a more fundamental rethink of the way tax was applied was required.

Member tax credits from the Government amounted to $697 million in the year, the FMA data said.