KEY POINTS:
As the impacts of the international finance crisis are increasingly being felt in New Zealand, Inland Revenue expects that more people will not pay their tax.
Tax takes are already expected to be down because of the crisis and recession.
However, Commissioner of Inland Revenue Bob Russell said today there would be people who should pay tax who didn't.
He told Parliament's finance and expenditure select committee that paying tax became a lower priority when businesses and people were facing financial difficulties.
"We know from our experience in other places around the world that in tough times people often don't put tax at the top of the list when it comes to paying their bills. They need to stay alive and play their suppliers and what not," he said.
"What we are trying to do is get messages out there to people that if they are encountering difficulties they should come and see us early."
He said arrangements could be tailored so people paid when they could.
"That allows us to turn off the penalties that would have otherwise occur. If they don't approach us, if they just put it on the back shelf and hope it will go away, it doesn't. The penalties add up and it makes it really difficult."
The committee was told of contingent liabilities which included $248.8m of tax in dispute. That figure represented outstanding debt of assessments where objections were lodged and legal action was proceeding. During 2007-08, 152 fraud cases and 643 evasion cases were started. Forty-eight evasion cases were successfully prosecuted.
Mr Russell said the department tried to get resolution other ways and court action was expensive.
There were much larger cases proceeding, he said.
"We have a few very large cases that are close to $2 billion tax in dispute."
The figures also showed $42m of money sitting in IRD accounts that people had not claimed.
Mr Russell said debt levels were likely to increase this year.
In 2007-08 IRD wrote off nearly $40,000 in bad debts. For debt administered on behalf of the Crown, IRD wrote off $700m relating to general tax and family support bad debts. Debts for the year of $31,200 were referred to Baycorp for collection.
The department was targeting the highest debtors and had tried to help graduates by offering a student loan amnesty for those behind in payments.
About 13,000 students picked up the student loan amnesty but 20,000 did not and would face penalties which added to debt figures. Penalties for tax pooling were also increasing.
"We're trying to do things to make it easier for those people who want to comply to do so," Mr Russell said.
He said the department would pursue people who didn't pay and take them to court if necessary.
The committee was also told that IRD spent $71 million in consultants. Mr Russell said $46 million of that was on IT. The department had faced huge costs building a new system for KiwiSaver.
"We just wouldn't have the capacity and wouldn't be sensible to try and build the capacity in house to take on a project that large."
IRD spent $2m on overseas travel in 2007-08 and $1m between July and December 2008.
Mr Russell said as a small nation New Zealand needed to be involved in international events to gather information and he thought the travel was good value.
For example, a considerable amount of travel was needed to secure a double tax agreement with the United States, he said.
- NZPA
