Inland Revenue Department Targets Zombie Companies with New Measures

The Inland Revenue Department has announced new measures aimed at addressing the issue of “zombie companies”—businesses that continue to operate despite having significant tax debts. These measures include sharing information about companies with tax arrears with credit-reporting agencies, a move that could help other creditors identify financially troubled businesses before they collapse.

In a significant policy shift, the Inland Revenue will lift internal restrictions that previously prevented it from disclosing tax debt information to credit agencies. This initiative is part of a broader effort to pursue outstanding tax obligations for Goods and Services Tax (GST) and Pay As You Earn (PAYE) that have accumulated over the past year.

According to Alan Bullot, a partner at Deloitte, the backlog of tax debts has reached concerning levels, growing from $3 billion in 2017 to approximately $9.3 billion as of March 31, 2025. Bullot emphasizes that many companies appear to be treating the Inland Revenue as a last-resort bank, accumulating large tax debts without addressing their financial obligations.

He stated, “We consider it very likely that none of the companies that have failed owing large tax debts recently had their information passed on to the approved credit-reporting agency.” This lack of transparency has left other businesses unaware of potential risks associated with trading with companies that have significant tax liabilities.

Legislation introduced in 2017 granted the Inland Revenue the authority to notify credit agencies about companies with substantial unpaid taxes. However, internal policies hindered its implementation, resulting in fewer than 20 notifications since the law’s enactment. Bullot noted that the department’s new announcements reflect a commitment to tackle this issue more effectively.

The Inland Revenue will now focus on balancing taxpayer confidentiality with the need for transparency among creditors. “While there is a need to balance a taxpayer’s right to secrecy and other businesses’ right to know they are not trading with a company that has significant tax debts, we think the balancing of these interests has favoured taxpayers with tax debts too much,” Bullot explained.

Businesses that engage with the Inland Revenue regarding their tax debts and establish payment arrangements will not be reported to credit agencies. This policy encourages companies to manage their tax obligations proactively, as neglecting them could lead to severe long-term consequences.

Bullot expressed concern over the collateral damage caused by failing businesses, stating, “As sad as this may be, hopefully, this would protect other businesses that are viable from becoming collateral damage, due to the trading credit they advance to zombie companies with large tax debts.”

The Inland Revenue ranks as a preferential creditor during company liquidations, meaning its claims are prioritized over those of other creditors, such as customers. Bullot argues that this status necessitates a more rigorous approach to managing tax debts, ensuring that penalties do not inflate the amounts owed.

He concluded by asserting that if the Inland Revenue continues to allow tax debts to accumulate without sharing information about them, it should reconsider its preferential creditor rights. The department’s latest measures signal a proactive approach to managing tax compliance and protecting the broader business community from the risks posed by financially unstable companies.

As the Inland Revenue embarks on this renewed effort, the implications for businesses grappling with tax obligations are significant. Companies must take these developments seriously and act accordingly to safeguard their financial futures.