Inland Revenue Targets Tax Debtors with New Reporting Measures

Inland Revenue Te Tari Taake is implementing new strategies to combat escalating tax debt in New Zealand. The agency has announced plans to report persistent tax debtors to credit reporting agency Centrix, a move aimed at increasing accountability among businesses that fail to meet their tax obligations. This initiative follows a successful pilot project, which involved notifying 30 customers in November 2023 about potential credit reporting if they did not respond within 30 days.

During a recent conference hosted by Chartered Accountants Australia New Zealand, Lisa Barrett, Deputy Commissioner for Customer and Compliance Services Business at Inland Revenue, outlined the agency’s intentions. She indicated that the credit reporting will expand in the coming months, potentially impacting hundreds of businesses rather than the few currently reported. This shift aligns with practices seen in Australia, where public reporting serves as a deterrent for non-compliance.

Keith McLaughlin, Managing Director of Centrix, highlighted the risks posed by companies accumulating significant tax debts. He warned that such businesses could trigger a domino effect, jeopardizing the stability of other companies when they eventually fail. Inland Revenue has observed tax debt rising from less than 6% of total tax revenue to over 8% within just three years. Barrett attributes this increase to several factors, including a failure to keep pace with debt write-offs and the perception that the agency has not aggressively pursued debt collection since the onset of the Covid-19 pandemic.

Barrett noted that there might be a growing trend of individuals choosing not to pay their taxes, a situation she believes could be influenced by economic pressures or a decline in public trust towards the government. To address this rising concern, the New Zealand government has allocated additional funding to Inland Revenue, with expectations of recovering $8 in tax debt for every $1 invested in recovery efforts.

Enhanced Compliance Measures

Inland Revenue is introducing advanced systems to track tax compliance, particularly focusing on landlords and property speculators. The agency receives notifications from Land Information New Zealand whenever property ownership changes hands. This information enables Inland Revenue to follow up with sellers if corresponding tax declarations are missing from their GST or income returns.

Barrett discussed the success of audits conducted over the past year, revealing nearly $230 million in tax discrepancies. Among these, $102 million was attributed to unpaid GST on property transactions, while $11 million involved undeclared rental income from 485 landlords. Additionally, $22 million was linked to quick sales that violated the Brightline Test law for 344 investors.

The agency’s commitment to compliance is evident in its recent audit activities, which saw a 40% increase in the number of audits conducted last year, uncovering over $1 billion in discrepancies. In the first quarter of the current year, Inland Revenue has reported a 20% increase in audits compared to the previous year, with a significant 60% rise in identified discrepancies.

Barrett emphasized the importance of tax compliance, stating, “At its most basic level, tax funds the things needed to protect business property rights. Our justice system, police, military, and basic regulation. Without these things, there is no ability to run a business.” This statement underscores the critical role that tax revenue plays in maintaining the infrastructure that supports the business environment in New Zealand. As Inland Revenue ramps up its efforts, the agency aims to create a more equitable tax system where businesses are held accountable for their contributions.