Members of the public inspect rthe original Treaty of Waitangi document on display at The National Archives. Two major iwi, including one which is yet to settle its historic grievances, have claimed that extending a capital gains tax could breach the principles of the Treaty.

OPINION: As if the Tax Working Group does not have enough to grapple with, it now faces a dilemma which arguably goes to the heart of the sovereignty of the tax system.

Does it accept warnings that an introduction of capital gains tax (CGT) could breach the Treaty of Waitangi?

Two large iwi organisations have submitted to the Tax Working Group (TWG) that unless they receive an exemption from CGT, the new tax would breach the principles of the Treaty of Waitangi.

If the iwi case is strong enough, the path of least resistance for Labour may well be to grant iwi an exemption.

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But were Labour to do so, this could create a string of problems, from the hole in the revenue CGT might otherwise create, to demand for large top ups of existing iwi settlements. This could also further undermine the odds of convincing NZ First leader Winston Peters to back the tax.

Ngāpuhi (Northland) and CNI iwi Holdings Limited - part of the Central North Island Iwi Collective - have both made written submissions to the TWG and other iwi may follow.

Ngāpuhi supports CGT generally but only on the basis it does not apply to themselves. That might sound funny, but it's not unusual.

ROBERT KITCHIN/STUFF Wellington businessman Troy Bowker says how iwi claims about capital gains tax are handled could have implications for the sovereignty of the New Zealand tax system.

Many New Zealanders still think that CGT will only affect wealthy individuals and big business.

That is a complete myth. I've met many bach owners and small business owners who considered themselves supportive of a CGT, until they heard of the impact it will have on them.

Ngāpuhi – New Zealand's largest iwi - are yet to settle their historical grievances with the Crown under the Treaty of Waitangi and say CGT will create further unnecessary tension in the negotiations with the Crown.

They argue the tax could risk alienating Māori from their land. They say Māori tend to have a disproportionate amount of capital tied up in land, which means they could face a disproportionate burden from extending CGT. But some other New Zealanders also have a disproportionate amount of capital tied up in land. Where do you draw the line for requests for exemptions?

As part of their settlements, some iwi were given the right to purchase property at favourable prices. Those rights could fall in value significantly if CGT is introduced, since any gains would be taxed when they sell the property.

But even if Ngāpuhi were granted more in its settlement on the basis of a future CGT, instead of being given an exemption, this may have costly implications for the Crown.

Having completed the settlement process on the basis of laws in place at the time, any new law which reduces the value of the settlement assets (or indeed assets acquired post settlement) could see other iwi seeking a top up. This could soon become very expensive indeed.

Granting an exemption could lead to Māori demanding exemption from all future tax changes that put them in a worse off position than at the time of signing their settlement with the Crown.

Why is CGT any different from any other form of tax future governments may want to legislate for? All forms of taxes result in a transfer of wealth to the Crown from taxpayers – that's the very nature of tax.

And where will NZ First stand on this? Will Winston Peters go into the election supporting an exemption for iwi, but not for other New Zealanders? I bet he won't.

Any changes proposed by Labour rely on support from NZ First, both before and after the 2020 election – unless Labour can govern alone.

NZ First has always rejected CGT and the tax is not covered in the coalition agreement.

Winston Peters may simply not commit either way during this term on CGT, but that will make it difficult to differentiate NZ First to voters since CGT is likely to be a major campaign issue.

Voters will want to know exactly where each party stands.

It also raises hugely significant questions about our tax system. The right to impose tax on citizens is one of the most important functions of Government.

If his Labour-led coalition government loses this right for one section of New Zealand society, then the rest of society will probably demand answers.

Either way, Labour is in an awkward position. On the one hand, they may say iwi should pay the tax like everyone else.

In doing so, they risk alienating factions of their own party and caucus who will feel strongly that Māori have a good argument for an exemption.

CGT will be the most significant tax reform in New Zealand in generations.

The TWG are on a strict deadline, with the Prime Minister and Minister of Finance are wanting legislation before the House by this time next year.

There are a multitude of complex issues that the TWG haven't properly thought through, either because they haven't had the time to properly do their job or they just simply cannot do what the Prime Minister is asking of them.

Just because some other countries have CGT does not mean its right for New Zealand. We should go our own way like we always have and face the fact that CGT may not be the right thing for New Zealand.

- Troy Bowker is a property owner in Wellington and chief executive of Caniwi Capital

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