What should you do about overdue tax?

Amid a crackdown on overdue tax and student loan debt, both sides of the fence agree on one thing; if you owe money to Inland Revenue (IRD), reach out to them and start a conversation.

The department's segment lead for significant enterprises, Tony Morris, told Nine to Noon that leniency following Covid had given way to increased enforcement of overdue PAYE and GST.

Extra government funding tagged to ensuring compliance had allowed IRD to employ more staff in that area. This, and improvements in its systems, had enabled IRD to "really ramp up".

Similarly, on student loans, high-profile cases of people being stopped at the border for being overdue on payments have increased awareness of the issue.

"But the main thing we try to do with all this stuff is ... we really want people to ... come to us and then have a discussion about how we can come to arrangements and that," Morris said.

"With the actual arrests at the border, we do very few of them and it's a last resort, really ... we try to get in touch with people and get them to talk to us."

Arrests at the border were very rare, he said - "It's less than 100 over quite a few years."

Student loan lawyer and IRD negotiator Dave Ananth, who used to work for the department, echoed Morris' advice when he told the programme that for companies in debt trouble.

"This is where I and a lot of other advisers come in, where we try ... to reach a compromise".

"The last thing we want to do is kill a good business because of a particular episode. So what we try to do on the ground is to make sure the business, if it's viable, of course, to see it move ahead and survive and pay the tax debt."

For those with overdue student loans, Ananth said, the process was the same: reach out and start a conversation.

"People who have come home but haven't addressed the fact that they've been away for a long time ... they still have to address the portion of the interest while they were abroad, plus the ... penalties at 9.6 percent a year. So I help them, you know, looking at the facts and that sort of thing, and negotiate."

Credit reporting another tool

Morris pointed to changes in legislation to increase credit reporting as another tool in its kit.

"So that's where if a business gets into trouble, we send it through to the credit agencies so people can see that they've got some credit problems. So then people can make their own choices whether they'll lend or trade with those entities.

"So far ... we've done approximately 100 reports. And what we find is that some people pay up ... but those that don't do anything, we've actually seen that people aren't lending them money any more as well."

Bigger corporates and high-wealth individuals contributed over 50 percent of New Zealand's tax take, Morris said.

Few of the "very big" corporates were in debt, he said, but "because they're so big and pay so much tax, from time to time they do make mistakes and errors and the tax can be significant when that happens".

"So that means of the sort of billion-odd dollars extra we collect from ... our audit each year ... around half of that or a bit over is actually from the larger groups.

"We don't see a lot of aggressive tax behaviour or avoidance behaviour in that group, but they do make mistakes. And when they make mistakes, they can be big amounts."

IRD's total tax debt was about $9.4 billion, Morris said - "We are actually starting to what we call bend the curve and bring it down."

That figure did not include student loan debt.

"For student loans, for overseas, we've got about just over 100,000 borrowers overseas. So they've got about $4 billion in student loans and the bit that's overdue is about $2.5 billion."

The reduction in tax debt was due to payments being made, not debt being written off, Morris said.

"The actual write-off of that debt is quite a slow process and ... we don't write stuff off until something's been formally liquidated or audits have finished or various things.

"So the write-offs are actually quite low and we're just ... reviewing that [to] see whether we can write off more because some of that debt actually has interest on it as well, which makes the ... debt book grow quite quickly.

"So what we've been focusing on in the last year or so is trying to get to debt early, and we've been ... successful at that.

"So we see a lot less new debt now, so hopefully in the long run that'll flow through to the old debt."

Evasion "still prevalent"

On tax evasion, Morris said the IRD did not measure how big the problem was - "It takes a lot of time and there's a lot of approximation".

"We would say that tax evasion is still there, still prevalent. We've got better tools now that we're starting to look at it, better data. Like we now get all the EFTPOS data from everyone so we can see what people receive in EFTPOS and we can use that data to help us see what [a business's] sales should be.

"We do a lot of evasion work. We get a lot of anonymous information. To say that we've reduced it, probably not.

"We think we hope we have, but it's quite a big issue for us ... we're out there doing various things."

With businesses that are simply unable to pay their tax bill, Morris is resolute.

"One of the concerns around some of the business tax is that quite a bit of what's outstanding is actually PAYE and GST. And PAYE is a tax that's not meant to be kept by employers, it's meant to be passed straight on, it's not their money.

"GST is similar. People in business that get GST are meant to pass it on to the government. It's not their money."

Automatic payment of PAYE was an option.

"We could look at some countries, you actually have to pay the PAYE or equivalent straight into the tax department on the same day you pay your employees, whereas we ... give them a few weeks or a month, depending on their payments, before they actually make the payments so they can hold on to the money.

"But some countries are doing it. So when you pay your employee, you're also paying [the tax] on the same day. So that's possibly something in the long term."

Morris reiterated the department's stance of wanting to work with businesses and taxpayers that owed them money.

"We work really hard to work with people ... giving instalment arrangements the best we can and [trying] to work them through.

"In some cases, you know, businesses and that just aren't viable. So that might end up in liquidation or bankruptcy because we've also ... got to keep the playing field fair for all the industries and all the people that work with those businesses.

"If they're really financially, truly in trouble and can't recover, then we have to take some harder action. But our approach is to help people and actually keep people in business and work with them."

On negotiating with people with overdue student loans who wanted to return to New Zealand, Morris said the department would "always enter into conversations and negotiation and do the best we can, that's right for everyone".

"We can't definitely go and say if you come back, we're going to write everything off, but we'll take into [account] people's individual circumstances and see what can work for both of us.

"So definitely always open to that conversation around any debt, about how we can best [help] people settle the debt and how they can come back into the country."

Lawyer seeing more enforcement

Lawyer and IRD negotiator Dave Ananth said he was definitely seeing more enforcement action from the department as more funding and staff became available.

"I see a lot more, not only on student loans, but also on the other aspects of investigations and audits across the board," he said.

"But I think what I need to stress ... is each case depends on its own facts.

"So some of the actions are appropriate. Obviously, they've been dodging the talking ... refused to talk to IRD and come to the table and have a conversation.

"Perhaps that's understandable. But a lot of businesses are genuinely in trouble because of various reasons outside their control."

That was where he and other advisers could help.

"We look at whether we should restructure the business - that's very common in terms of people running a business.

"Sometimes we look at a business and say, hey, this is not working out because your overheads are too high, or you've got too many employees who are not really doing anything of substance - why don't you move to a ... cheaper rental, look at downsizing, look at, you know, restructuring your home business, that might take maybe six months.

"What I do then is I ring up IRD - and this happens on a daily basis - and say, look, we are restructuring the business, give us a bit of time, we'll come back to you with a proposal.

"And that generally works and we say we have now restructured, we've got a bit of funding available from the bank, or a second-tier lender, this is what we can do."

His advice for improving the process for both the IRD and its debtors would be to set up a special team of negotiators, "where we could go to this team and have that process [with] people who are trained in negotiations".