Inland Revenue Targets Tax Debtors with New Reporting Tactics

New Zealand’s tax authority, Inland Revenue Te Tari Taake, is implementing a series of measures aimed at reducing the increasing tax debt among businesses. Effective immediately, the agency will begin reporting persistent tax debtors to Centrix, a credit reporting agency. This initiative follows a successful pilot project that highlighted the need for increased accountability among tax debtors.

During a recent conference held by the Chartered Accountants Australia New Zealand, Lisa Barrett, Deputy Commissioner for Customer and Compliance Services Business at Inland Revenue, announced that the agency would escalate its credit reporting efforts in the coming months. She indicated that an initial pilot involving 30 customers demonstrated the effectiveness of notifying tax debtors that their information would be reported if they did not respond within 30 days. Barrett stated, “We intend to ramp this credit reporting up over coming months and in time, it will result in us reporting hundreds of businesses, rather than the few we currently do.”

The move aims to address a troubling trend: tax debt in New Zealand has risen from less than 6% to more than 8% of tax revenue in just three years. Barrett explained that this increase in debt could be due to several factors, including insufficient debt write-offs and a perception that tax obligations can be ignored, particularly following the Covid pandemic. “The other reason … is, quite simply, that more people are choosing not to pay their tax,” she noted, emphasizing the complex socio-economic factors at play.

Barrett’s concerns are echoed by Keith McLaughlin, Managing Director of Centrix, who highlighted the potential risks that businesses with significant tax debt pose to the economy. He warned that such companies could trigger a domino effect, adversely affecting other businesses if they fail.

In response to escalating tax debt, the New Zealand government has allocated additional funding to Inland Revenue, anticipating a recovery of $8 in tax debts for every $1 invested in compliance measures. Barrett detailed some of the systems being employed to identify tax evaders, particularly among landlords and property speculators.

The agency now receives alerts from Land Information New Zealand whenever a property changes ownership. This allows Inland Revenue to follow up with sellers if the transaction is not reported in their subsequent GST or income tax returns. “Our system then automatically matches up the information and sends out leads to our people wherever it spots a likely problem,” Barrett explained.

The tax department’s intensified efforts have already yielded significant results. In the past year, it closed audits that revealed nearly $230 million in tax discrepancies, including $102 million in unpaid GST related to property transactions, and $11 million in undeclared rental income from 485 landlords.

Furthermore, Inland Revenue completed over 6,000 audits last year, marking a 40% increase from the previous year, and uncovered more than $1 billion in discrepancies. Barrett noted that the agency has continued to accelerate its compliance efforts, completing around 20% more audits in the first quarter of this year compared to last year, while discovering approximately 60% more discrepancies.

Barrett delivered a clear message to those neglecting their tax obligations: “At its most basic level, tax funds the things needed to protect business property rights. Our justice system, police, military, and basic regulation are all essential. Without these, there is no ability to run a business.”

As Inland Revenue ramps up its efforts to ensure compliance, businesses are urged to take their tax responsibilities seriously to avoid the consequences of being reported to credit agencies. The agency’s proactive approach aims to foster a culture of accountability and ultimately strengthen the economic landscape in New Zealand.