Article

Facts and figures as Inland Revenue reports on its performance

Tax Alert - November 2016

By Veronica Harley 

Recently, Inland Revenue released its 2016 Annual Report.  It’s a document that‘s full of facts and figures that not only explains how much revenue has been collected and where it has been spent, but also sets out performance targets and results and outlines the Department’s strategic intentions.  It’s also a large document of 140 pages so we’ve summarised a few key facts and interesting takeaways below.  That said, the document is not unsurprisingly presented to give a positive view of Inland Revenue’s performance against targets.

Protecting New Zealand’s revenue

This year $63.4 billion in tax revenue was collected.  The diagram shows a breakdown of the main revenue sources.

In order to protect New Zealand’s revenue, focus has been on areas of non-compliance which includes the hidden economy, property, employer deductions and aggressive tax planning arrangements by international and multinational organisations.  Differences of $1.2 billion were identified through investigations.  Specifically:

  • Readers may have noted the recent marketing campaign focusing on the hidden economy and in particular on the construction and hospitality sectors where there is a greater risk of people not reporting cash revenue;
  • There has been emphasis on residential property speculation in new developments, particularly in Auckland.  Regions and some suburbs with high property turnover are being closely monitored.  An agreement signed with Land Information New Zealand in October 2015 enables it to send information collected from property buyers and sellers to Inland Revenue;
  • A new specialist team was put in place to help investigate employer compliance concentrating on unpaid employer deductions (i.e. PAYE. KiwiSaver, child support and student loans) with particular emphasis on those employers making deductions but not passing them on to Inland Revenue;
  • Several long running aggressive tax planning litigation and dispute cases were successfully closed during 2015-16.  These included an international financing case and another case where a promoter of a tax avoidance scheme had a $17 million penalty imposed;
  • There is an extensive international compliance program in place to address base erosion and profit shifting (BEPS) issues such as international pricing and financing arrangements.  The report notes that “this year we have seen good compliance from multinationals in respect of their international tax planning arrangements”, and
  • Inland Revenue has a “significant enterprises” compliance program focussing on nearly 600 taxpayer groups, 50% of which are foreign-owned with a further 25% involved in international operations.  There is acknowledgement that these organisations make a significant contribution to New Zealand’s revenue – over $6 billion of tax. Performance data from this segment is closely monitored, including tax payments, operating margins and interest expenditure.  
Click to enlarge image
Click to enlarge image

Making it easier

A major focus this past year has been to “make tax simpler” as part of the Business Transformation Project and to make it easier to help taxpayers meet payment obligations.  Improving digital services is a key strategy to enable this with improvements to the website. Inland Revenue says it is now much easier and quicker to find answers to simple questions.  This is a key part of helping taxpayers comply and manage their own tax affairs.

There have also been improvements with the myIR secure online service accounts service.  It is now possible for customers using MYOB and XERO to use this software to submit GST returns directly into the Inland Revenue’s system after a successful pilot was run earlier this year.   Certainly at the smaller end of town, users of such software are reporting time and compliance saving benefits.  We are about to enter stage 2 of the Business Transformation project which looks to streamline income and business tax.  This is the major part of the project where taxpayers will see and experience the most change.  Time will tell, but it will be important that taxpayers engage fully in this phase to ensure that compliance costs are not shifted to employers and significant enterprises.

Some numbers at a glance:

Returns and investigations

85%

The percentage number of tax returns that are filed on time

382,000

The number of company tax returns filed in the year ended March 2015.

88%

The percentage of returns filed between July 2015 and March 2016 without errors

$1.2 billion

Tax difference discrepancies discovered through Inland Revenue investigations

$10.1:$1

Actual return on investment for specific budget funding initiatives (hidden economy, property compliance and complex technical issues)

$166 million

Tax position differences resulting from the hidden economy investigations

Rulings, adjudications and litigations

28

The number of published or finalised public items providing the Commissioner’s interpretation of the law

100%

Percentage of taxpayer ruling applications where a draft ruling is completed within three months of receipt.  [Deloitte comment: The document is silent on how many taxpayer rulings were received so it’s hard for readers to know whether that’s good in the context of the number received]

79

Completed prosecutions for tax evasion, knowledge and Crimes Act Offences.

Sundry

$63.4 billion

Tax revenue collected

>2million

The number of active myIR accounts which means taxpayers are saving time by using the online service

.54

The correlation between donation rebates claims from Inland Revenue and donation levels recorded at the Charities Service.  This is down from the previous tax year (.58).

2.1 million

The number of employer monthly schedules with PAYE deductions filed by 200,000 employers

2.6 million

The number of people enrolled in KiwiSaver

$1.1 billion

Overdue Student loan debt, 91.5% of which is owed by overseas-based borrowers

 

 

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