Introduction
This inquiry was commenced amid growing public concern over the manner in which the Inland Revenue Department (the department) conducts its operations. It had always been our intention to conduct an inquiry of some nature into the workings of the department during this Parliament as a means of assessing the impact of, and holding the Government accountable for, the new compliance and penalties regime. However, given public perceptions that the department was at times too heavy-handed and inflexible in its dealings with taxpayers we decided that a wider review of the powers and operations of the department was necessary.
We acknowledge that the collection of revenue from often reluctant taxpayers is not an easy task. We also realise that in most cases the department discharges its duties in a fair, ethical and professional manner. However, the evidence we received and heard indicates there are times when the department’s approach in its dealings with taxpayers has been less than exemplary. We are concerned that the reasons for the department’s occasional lapses in its duty to apply the law in a professional manner be identified and remedied. This is essential to maintain the integrity of and public confidence in the tax system. We consider that this report and our recommendations, if acted upon, will contribute in this regard.
This report makes a number of recommendations to the Government and we note that the Government has announced an intention to undertake a number of reforms in the wake of our inquiry. However, given the wide scope of the inquiry and the relatively short time frame in which it was conducted, we have not been able to investigate fully all the issues which arise from the submissions we have received. Many of these issues raised substantive concerns which we feel warrant a more lengthy period of consideration. While this is the final report of this committee on the inquiry, we agreed that the best approach would be to highlight in this report the areas which we strongly consider need further investigation, and make suggestions for follow-up by the next Finance and Expenditure Committee and the Government.
A number of individual taxpayers took the time to make submissions to us about their dealings and relationships with the department. We make no findings or recommendations in respect of specific cases detailed to us as our terms of reference and factors such as the secrecy provisions in the TAA precluded us from doing so. However, the value of individual submissions in giving us insights into the operations of the department on a number of levels cannot be overstated. The recommendations we make follow the experience of these taxpayers who took the trouble to make full and considered submissions to us. In a number of cases we drew issues relating to specific cases to the attention of the department for comment or follow-up action. Many submitters to the inquiry had genuine and deeply-held grievances with the way they have been treated by the department. Several made appearances before us at considerable emotional cost. We greatly appreciate their input. Our thanks go to them.
Focus of report: principal issues of concern
We received a large number of submissions on this inquiry and although many submitters detailed to us quite different experiences with the department, several themes emerged from the public hearings. The key points to emerge are as follows:
- The underlying structure of the penalties regime is sound. However, the rates of penalty are excessive in some cases and should be reduced, and there is a need for greater flexibility on the part of the department in its operation of the regime, without unduly compromising fairness and equity to all taxpayers.
- The importance of the perception by taxpayers that the tax law and its administration is fair and appropriate. Improvements are needed in this area.
- More checks and balances on the department’s exercise of its powers are required to enhance the integrity of the tax system.
- The first principle of the department’s debt management practices should be consistent with the statutory responsibility to collect the highest net revenue over time, not collection at any cost.
- The department’s debt management practices should include early warning systems and involve more senior personnel who are and can be seen as independent and impartial.
- There is a need for an internal system for the resolution of taxpayer complaints and problems to prevent problems escalating and being brought to the attention of the Ombudsman.
- While we do not find that the department’s structure and approach in its dealings with taxpayers is fundamentally flawed, there is a need for a cultural shift in the department to reflect a greater customer oriented ethos. This shift must be driven from the senior management team.