Taxman not giving enough refunds

The taxman has collected hundreds of millions of dollars in overpaid taxes from the nation's workers and isn't making enough effort to give it back.

That's the claim from senior tax manager Mark Daly of Wellington accountancy firm Grant Thornton, who has IRD figures showing Kiwi workers paid $124 million more in taxes than they should have in the two years to March 2006.

The overpaid taxes have been collected since a change in the tax system in 2000 meant most salaried workers no longer had to file tax returns.

Instead, the IRD "squares-up" the tax accounts at the end of the year for around half a million workers those who have received family tax credits, had a student loan write-off or used special tax codes but assumes that the system is, by and large, collecting the right amount for all other workers.

But Daly says inaccuracies in the system are adding up and it is time the system is reviewed to reduce them, and to force the IRD to be as vigorous about returning overpaid tax as it is about collecting regular or underpaid tax.

The issue will be on the agenda when Act leader and tax-avenger Rodney Hide meets IRD commissioner Bob Russell this week after Daly sent his findings, which he published in the Chartered Accountants Journal, to MPs on parliament's Finance and Expenditure select committee.

"They chase Kiwis down hard when they underpay their tax, but don't have a care in the world if they overpay it," said Hide.

"If this was a private sector business, the politicians would be jumping up and down about a business ripping off their customers, but they are strangely silent about the IRD ripping off taxpayers," he said.

Daly, who worked at the IRD until 2000, got the figures in an answer to an official information request. They showed that:

In April this year the IRD owed $73,135,998 in overpaid taxes to 50,392 taxpayers collected in the year to March 31 2006.

It also owes $51,035,315 in overpaid tax to 37,201 working taxpayers collected in the year to March 31 2005.

But Daly reckons as much as $700m in overpaid tax might have amassed in IRD coffers since 2000.

"It comes down to the fairness of the tax system," says Daly. "Their job is to collect the proper amount of tax. If it's been overpaid, and the system is set up to err slightly towards over-collecting tax, it is still their job to give it back."

He said the IRD makes only a "token effort" to alert taxpayers to both actual and potential overpayment by way of advertisements and notices on its website.

The IRD says the tax system is broadly accurate, and the quid pro quo for not having to file a tax return was that there would be some inaccuracy, which would mean small under and overpayments of tax for some individuals.

Anyone who did not want to accept this deal could file an annual tax return and have an accurate end of year square-up. 150,000 do so every year.

IRD also denied it wasn't doing enough to refund taxpayers. Each taxpayer found to be owed more than $200 tax back after one of its automatic end of year square-ups was sent a letter in which they were asked to confirm the accuracy of its assessment. It was their choice whether they responded and claimed their refund.

Inland Revenue did acknowledge, though, that there might be better ways to let the public know they might have overpaid tax. "We are looking at ways to ensure everyone is aware of the process," the IRD said in a statement on Friday.

It admitted it had no idea how much it would have to pay back in taxes for the past seven years, should every taxpayer put in requests for reviews.