By Terry Baucher*
As every business owner can attest tax doesn’t do summer holidays.
While the country enjoyed a particularly golden summer our tax timetable ticked on relentlessly.
Between Christmas Day and 15th January, PAYE payments for larger employers for the second half of December, provisional tax for most taxpayers and GST for all GST periods ending 30th November all fell due.
I’m not sure if it’s either ironic or a rather dark joke to point out that the Income Tax Act definition of “working day” excludes the period from 25th December to 15th January (inclusive). I’m pretty certain I wasn’t the only advisor making a few calls to clients during that time.
Still, Bill English will appreciate the cash in-flow to the Government’s coffers.
Last week he announced that he will present this year’s Budget on 16th May. The key theme will probably be the Government’s ongoing drive to restore the Budget to balance. With regard to specific tax initiatives, we will not see anything like the major tax “re-balancing” announced in 2010. Instead there will be a series of “remedial” legislative changes similar to those announced before Christmas regarding lease inducement and lease surrender payments.
Alongside new or amending legislation this year, the IRD will issue more Interpretation Statements “clarifying” its position on various matters.
One of those issues to be clarified is the tax treatment of overseas pension schemes transferred to New Zealand.
I’ve heard a decision is near but I’ve been hearing the same since the issue erupted into the open almost two years ago. Frankly, I view the current tax treatment of foreign superannuation schemes and foreign investment funds as the tax equivalent of Novopay: an incoherent mess resulting in deep dissatisfaction for its users (taxpayers) and a tar-baby for anyone wanting to solve it without introducing a formal capital gains tax.
In the wake of the Novopay fiasco the Government is understandably unwilling to commit to major new I.T. projects but a decision about what will replace the IRD’s twenty year old FIRST computer system is increasingly urgent.
According to the IRD’s own statistics released before Christmas as of 31st March 2012 there were 7,234,252 “customers” registered with it although only about 4.5 million are deemed “active”. IRD currently has about 5,500 staff which means that on average each IRD person is responsible for over 800 “customers”. That is a fairly fearsome work load which can only be managed through good systems and the goodwill of taxpayers and their tax agents.
The strains are starting to show, however, particularly in the area of tax debt.
Over the ten year period ending on 30th June 2011 the total amount owed to the IRD more than tripled from $2.5 billion as at 30th June 2002 to just under $7.8 billion. The fastest growth was in student loan payments which rose 554% over the period. But at $412 million the total of overdue student loan payments is just 5% of the total owed to the IRD.
As you would expect the main offenders are income tax, $2.2 billion, GST, $1.9 billion and PAYE, $623 million.
Topping them all, though, is child support payments which amounted to $2.27 billion or 29% of the total owed to the IRD at 30th June 2011. The total child support owed has increased by 405% since 30th June 2002 and $2.09 billion or 92%(!) is more than two years old. By comparison about 50% ($2.75 billion) of the remaining tax debt is more than two years old.
One of the sources of this debt blow out is that businesses and individuals are no more likely to pay on time now than nine years ago. For example, 88% of businesses paid their GST on time during the year ended 31st March 2003. For the year ended 31st March 2011 that number was 85%. For PAYE, 91% of businesses paid it when due in 2003 compared with 88% for the 2011 year. Only 70% of child support was paid in full on time during the March 2011 year compared with 69% during the year ended 31st March 2003.
The IRD’s response to late or non payment has been to charge late payment penalties and use of money interest. Late payment penalties are typically 1% per month but a more penal 36.8% p.a. rate applies for Child Support. Use of money interest rates on unpaid tax are currently 8.4% but were as high as 14.24% as recently as February 2009.
Given that tax debt has tripled in the past ten years and the amount of “customers” paying on time has not improved over the same period, the IRD’s present tax collection policy is at best under-performing, if not an outright failure. The danger is once it appears that non-compliance is not being vigorously tackled by the authorities the likelihood rises of other taxpayers deciding they too can avoid their liabilities. This in essence is what has happened in Greece to catastrophic effect.
An upgraded computer system will undoubtedly make a difference to IRD’s performance and help prevent further deterioration. However, any replacement to FIRST is several years off (even if its implementation goes smoothly). In the meantime as the position is likely to continue to worsen I suggest an alternative approach is needed.
For several years now the IRD has referred to taxpayers as “customers” even though we deal with it because we are required by law to do so. Instead of reaching for a big stick whenever a taxpayer, sorry customer, transgresses, how about encouraging compliance by rewarding prompt payers and filers with discounts?
After all don’t businesses try and reward their best customers?
And we are customers aren’t we?
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*Terry Baucher is an Auckland-based tax specialist and head of Baucher Consulting. You can contact hime here »
19 Comments
Given that tax debt has tripled in the past ten years and the amount of “customers” paying on time has not improved over the same period, the IRD’s present tax collection policy is at best under-performing, if not an outright failure. The danger is once it appears that non-compliance is not being vigorously tackled by the authorities the likelihood rises of other taxpayers deciding they too can avoid their liabilities. This in essence is what has happened in Greece to catastrophic effect.
hmmmm - Maybe this is an ideological driven lapse of control to facilitate the imposition of a corrective PPP tax collection racket, much as the NHS in the UK has been run down to a point which apparently necessitates private sector skills to correct predetermined deficiencies?
What else would serve as a coherent explanation?
Perhaps the reluctance of the general populace to pay thier tax is due to the recent spotlight on Google, Apple, etc to get away with transfer pricing for sales in NZ.
What incentive does the average taxpayer have to comply, when others don't?
IRD arn't stupid, they know all about transfer pricing, and have enforced on smaller companies for years.
But now they reap what they sow.
Gee - I wonder if this;
The total child support owed has increased by 405% since 30th June 2002
Has anything to do with this;
... a more penal 36.8% p.a. rate applies for Child Support.
The problem as I see it is that this tax accountant seems to aim all his bullets in an attempt to get blood out of a stone. Point is - the poor aren't getting any less poor - so I have no idea how trying harder to collect from them is gonna work. In fact, student loans and child support debt are probably the top contenders for a debt jubilee. Penal interest rates only compound problems for those already struggling to pay.
Completely agree Kate. The whole system of penal rates is a national disgrace, it punishes the weak and is totally counterproductive. It encourages people to hate the IRD, and thus the government by extension. The social damage of this "little Hitlerism" is much greater than is acknowledged.
Personally I don't see why the IRD should enjoy any powers ahead of any other unsecured creditor. This penal rates smacks of a penal colony attitude to the citizenry.
Couldn't agree more.
And how's this for the latest "big idea" in cost recovery;
http://www.stuff.co.nz/national/8320507/NZTA-bills-crash-victim-1300
Guess Geoff Dangerfield has to do something to legitimate his $500K plus salary;
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10613946
The guy started his career out in the Ministry of Works and we taxpayers have never been able to get him off our payroll since.
Sorry, Terry. (Storry?)
The main purpose of Gumnut is to have dependents. These take two forms - employees and beneficiaries (defined as having > 50% of income ex Gumnut redistributions). Both will reliably vote for the Hand Wot Feeds 'em. And so reducing either number threatens the very Base of our Entire Democracy.
It's entirely possible to view the increased delinquency rolls as a variant of the second class above: if you Owe the Gumnut a whack for - well - anything, you are a Dependent.
Feature, not bug.
If you export shittake mushrooms from NZ to China , the government there slaps a 2.6 % tax ( tarriff ) on your produce ...... but no tax at all if you export them from Chile ....... sadly for the Peruvian shittake industry , their tarriff into China is 7.8 % ....
...... ahhhhhh , the joys of a command economy .... when the chosen few at the top of the heap can make such arbitrary and nonsensical decrees .....
Tax mushrooms , comrade !
Speaking of mushrooms, PM John Key said on TV One News, only a few minutes ago, that he has seen the draft of the report into the Sky City convention center ,issued by the Auditor General.
I would wager you have not seen the draft, as it is not publicly released, and thus urge you to pay cash to every tradesman you employ. Or just stay in the dark and be fed bullshit.
I agree Mist !!!! Business is required at great expense to prepare and forward to the IRD all information and payments for each applicable tax that applies.
There have been numerous times when I haven't been able to file on-line as the IRD was having techinical problems with their system and trying to get hold of them by phone can see you waiting for very long periods of time. While they have a call back system this means you are waiting around on them which is another cost in time and money to business. In fact it is down right inconvenient and lowers productivity.
The time and costs of completing all taxation obligations by business is never factored into any Government reports. There are an enormous number of accountants running around NZ and all making a good living off the taxation system obligations. These accountancy business's only exist for one reason and it is about time someone in Government took the intitiative and put some figures together to see what the real cost of taxation is on business.
I'm pretty grumpy about the number of foreigners who shift here for retirement and are picking up NZ superannuation.
IRD needs to open up and have a "TALK TO US" campaign. You will find that the staff are human and they can make and assist with sensible arrangements to pay off debt. There needs to be a greater incentive to get debtors to pay I.e. forgo the penalties and reduce the use of money when arrangements are kept and paid as agreed.
Billionaire - how about implementing a new system which doesn't require so many business resources to comply. The system is completely inefficient and a burden to all.
I find your use of the word "debtor" as unusual. Who actually owes who? If I have paid all my taxes but never used a public service does that mean I'm now a creditor?
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I'm sick of completing all the requirements and then watching how it is spent. Have anyone ever watched the idiots debating in Parliament - they are like a pack of kids in a playground. I expect professional behaviour and sensible debate not the BS that goes on in there. Question time in Parliament is ridiculous. They stupid childish games are appalling and tells me they are not interested in NZ'ers. The complete lack of moral fibre in provisioning the best outcome for all NZ'ers is absent. The poor vs. poverty mindset is prevalent and this has got to go. NZ doesn't have poverty as defined in 3rd world countries. We have some low income earners. The question of "why" never gets answered. People are not treated equally and in NZ we only hear about the poorer sector. Why do politicians focus on this group? Simply because without this group most of the Politicians would not have jobs. So it actually suits those Politicians who are of a Socialist mindset to keep this sector of the population poor as they can make various promises of help and assistance to this group to obtain votes.
I am tired of Public servants being inefficient and incompetent.
I also sick to death of the entitlement mentality that has been created. The expectation that someone else will fund laziness is not acceptable. The WFF really graunches my gears - the lazy sods should be getting another job and be using some of their unproductive time to earn more income.
Pension schemes for Public servants is bollocks..........Do people know how little they pay into these schemes over their working life and still get NZ Super on top?
Why should tax payer money be spent on purchasing business activities with no direct return to the tax payers footing the bill? Taxes should be treated like shares. There has to be a return greater than the investment.
ACC is bollocks. Enormous compulsory funding by business and tax contributions by Government has allowed ACC to be one of the biggest investors in NZ. They justify this position by informing the public and Government that the investments are to offset long-term requirements of those who have permanent injury. The real figures of what these injuries cost on an annualised basis is obscured. Forward planning is something business does to increase market share and business activity, capital requirement etc. This is not an appropriate model to be using in ACC or any other Taxpayer funded organisation. There is also the rather large question of compulsory obligations for business without any of the normal business negotiations and contracts able to exist between the two parties. A board of Directors should be responsible to all the shareholders. Who represents the business contributors to this scheme?
EQC - this is another completely inefficient organisation. The cost of this organisation from allowing Fletchers to have the contract is ridiculous. How much tax payer money is going to be thrown in the pot to pay for these inefficiencies? Why should the RBNZ who is a large shareholder in Fletchers obtain financial benefit from taxpayer funds?
Articles like this one are really annoying and unhelpful. Everyone's attention gets drawn to those who are seen as ripping off the IRD in some way and allows for the continuation of the incompetence and inefficient delivery of the Public Service and these are the real rip-off merchants that walk our streets depraving people of real quality of life.
NZ cannot tax its way into prosperity.
Look at this example of IRD incompetence ....I came across a Liquidators report on the Companies Office website the other day with $352,000 owing by a Co in liquidation to the IRD in unpaid PAYE . I understand the total debt is around $750k to the IRD.
HTF could anyone get away with this and rack up so much debt ?
What did the IRD do to recover this while the debt was climbing to such an uncontrolled amount ?
And whatsmore , the directors seem to have scuttled off to Oz without consequence
The report is a public document on the Companies Office website , so I coult give detiails to Interest .co.nz
Gareth Vaughan
A bit of light reading for you
The boat is leaking like a sieve at both ends
http://www.stuff.co.nz/national/crime/8324096/Clean-records-for-criminal-immigrants
What is significant is they put a freeze in place immediately
Shows the authorities can jump when they want to
Hey Boatman - what's the name?
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