IRD aims to increase compliance

Inland Revenue is taking the unprecedented step of revealing its latest battle plan as part of a bold move aimed at boosting tax compliance and curtailing the black economy.

In what tax professionals view as a sea-change for the taxman, the 6000-strong department hopes that by adopting a more open approach it will foster a new environment where the right taxes get paid and on time.

PricewaterhouseCoopers tax partner Geoff Nightingale described the move as a "positive step for transparency of IRD operations" that would ensure more Kiwis contributed towards the country's tax burden.

"We should be collecting every dollar from people who can afford it," said Mr Nightingale. "The IRD will focus on the cash economy, fraudulent tax arrangements and hidden assets. This will ensure greater tax contributions are brought back into the tax system and hopefully keep tax rates down."

By unveiling for the first time the areas it intends to target during the 2009-10 tax year, Inland Revenue hopes to significantly undermine New Zealand's "hidden economy", one built on a culture of under-the-table cash payments and straight-up tax avoidance.

The IRD does not have a ballpark figure for the estimated worth of the cash economy, instead choosing to stand by the line "we don't know what we don't know".

An insight into the size and scale of the hidden economy is provided, however, by a 1998 tax compliance report produced for the Treasury by a committee of tax experts.

That report found tax evasion was costing the Crown more than $3.2 billion a year in lost taxes, while the hidden economy itself was worth between $10b and $12b a year.

Internationally, the hidden economy was in line with most OECD countries, an annual average 8.8 per cent of gross domestic product (GDP).

"While unrealistic to tax the entire economy drug dealers aren't happy about paying tax and tend to carry guns there's a cash culture that desperately needs to be addressed," PwC chairman John Shewan told BusinessDay.

Areas of focus for IRD will include the growing number of businesses carrying higher burdens of tax debt, which is likely to increase in the current global environment.

This year's industry hit list would see IRD focus on the energy, film, banking, finance, investment and insurance sectors, which were structured to minimise tax, said Inland Revenue commissioner Robert Russell.

TAXING TIMES2007/08: IRD collected $51.2 billion in tax compared with $48.6b for 2006/07. Investigations of large businesses revealed $723m in net discrepancies. Employers collected $24b pay as you earn (PAYE) tax from employees 45 per cent of total tax revenue. 5700 tax agents registered handling 1.9m customers. IRD collected $550m student loan repayments compared with $486.5m for 2006/07. 395,100 families received working for families tax credits worth $1.9b.

- By KRIS HALL

- © Fairfax NZ News