IRD targets high worth individuals, cash firms

By Rob Hosking

Friday 5th October 2001

Inland Revenue reaped $257 million from tax avoidance and evasion schemes in the year to June - and it plans putting more resources into such efforts.

The $257 million includes penalty payments and is included in the department's yet-to-be tabled annual report, commissioner David Butler said this week.

The department is targeting "high-risk" groups, which include high-worth individuals as well as firms that are likely to work in the cash economy.

"High-worth individuals and aggressive tax schemes are a reality of life and the people who can afford to do so will get into these things," he said.

The commissioner's comments came at a briefing on the department's new business plan, which outlines ways in which it hopes to make compliance with tax rules less onerous than it has been.

There was still a great deal of fear about the department in the wake of the parliamentary inquiry into its practices, Mr Butler said, and he hoped to dispel that.

The inquiry made it clear that, while in some areas the department had to be harsh because the law required it, in other areas there was more officials could do to make things easier for businesses, he said.

"A common comment is that the government should make tax law easier to understand. But, except for tax practitioners, I don't think most people actually read the tax law. They don't have to. But they do need to deal with the forms we send them and so forth. We can control that a lot more."

A fault of the system in recent years has been a "one size fits all" approach. An unspoken assumption underlying the tax rules was that most firms would have the size and clout to deal with complex tax matters.

In fact, only 2.2% of New Zealand businesses have an annual business turnover of more than $5 million - and more than half have less than $200,000 turnover.

"The majority of those small firms are owned by people who work seven days a week and they don't actually make that much money. We are going to make it more flexible for firms like that."

Over the next few years, the vast majority of firms will be supplying less information than they need to right now, he said.

However, the "high-risk" groups would have to supply more. While in Australia, Mr Butler introduced a questionnaire for high-worth individuals.

"We are introducing that here but it has had much less fuss because there are fewer of them."

The same customised approach would be applied to defaulters, he said.

A firm that missed a payment but which had a good record would not be treated the same way as an habitual defaulter.

For smaller firms, the department would be encouraging them to pay tax up front. The interest forgone for small firms would be minimal but it would eliminate the risk of them getting into trouble by finding the money was not there when taxes were due.

And, more broadly, the department has held discussions with the Compliance Cost Panel, and Commerce Minister Paul Swain, on long-term ways of reducing compliance costs to business.

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