Term of reference D
To examine the feasibility and desirability of establishing a tax ombudsman to investigate taxpayer complaints
- Complaint mechanisms within the department
- Current role of the Ombudsman in tax matters
- Need for effective departmental complaints service
Complaint mechanisms within the department
We received overwhelming support from submitters for the establishment of a separate tax ombudsman to investigate taxpayer complaints. We feel this is more a reflection of the general frustration amongst some taxpayers with the lack of redress available to them from within the department. We consider the call to establish a tax ombudsman is a direct consequence of the disestablishment by the department of its Problem Resolution Service in 1996.
The Problem Resolution Service was established to resolve problems that could not be resolved through the department’s standard procedures (that is, with the officer concerned or with the officer’s manager). A dedicated Problem Resolution Officer was established in each district office to assist with cases where long delays had occurred or where taxpayers considered a decision to be incomplete or unfair. The Service was disbanded in 1996 after the Organisational Review which introduced segmentation into the department. The effect of this was to group all the information about a particular taxpayer within one managerial group. It was considered sufficient for the manager to act as the point of contact for any taxpayer complaints. Many submitters, however, feel this arrangement lacks transparency and independence.
Queries, complaints and disputes about technical tax matters are resolved under the disputes resolution procedures as set out in the TAA. This includes referral to the department’s Adjudication Unit, which is an independent unit within the department set up to assess the merits of a case against a taxpayer before legal proceedings are initiated. From the evidence we received, there is general support for this practice and confidence in the neutrality and independence of the Unit. Ultimately taxpayer complaints of a technical nature are determined by the Taxation Review Authority or other courts. Complaints that may amount to a serious breach of the department’s Code of Conduct are dealt with by the Internal Audit section of the department’s National Office.
There are very few options, however, for a taxpayer who has a relatively “low level” complaint such as poor communication or the lack of timely responses from the department when dealing with a tax dispute. If the dispute cannot be resolved at the officer/manager level the other options available to the taxpayer are an approach to the Commissioner directly, to a local Member of Parliament, the Minister, or the Ombudsman.
Current role of the Ombudsman in tax matters
While there is no dedicated tax ombudsman in New Zealand, taxpayers can and do make complaints to the Office of the Ombudsman regarding any administrative action or decision made by the department. A specific unit within the Office of the Ombudsman deals with complaints of this nature. The Ombudsman, however, cannot make determinative or binding decisions following an investigation of a complaint. The department, therefore, like any other government department is not obliged to follow the Ombudsman’s recommendation. However, the department notes that it “accepts most recommendations".
The Ombudsman advised us that the number of general inquiries received relating to the department’s administration of the tax laws has increased significantly over the past three years. The major areas of complaint are:
- refusal of access to information requested by taxpayers
- failure to communicate adequately the reasons for a decision
- failure to respond to a taxpayer’s communication within a reasonable time
- failure to take account of all relevant matters when exercising a statutory decision
- applying a narrow interpretation of statutory provisions.
Options for enhancing the Ombudsman function
PricewaterhouseCoopers submits there is no need for a separate tax ombudsman to be established provided the resources of the existing Office of the Ombudsman are strengthened by establishing a specialist tax team to review decisions made by the Commissioner as they relate to the department’s administration of the TAA. PricewaterhouseCoopers is surprised that this expertise is not currently available within the Office of the Ombudsman given that tax issues represent the second highest number of complaints against government agencies. ICANZ submits that a tax ombudsman, whether separate from the existing Office of the Ombudsman or not, must have the requisite skills and experience, and have the unqualified support of the Commissioner who has in place a “fast track priority facility” to deal with tax ombudsman cases.
In 1995 in Australia a specialist tax ombudsman position was established within the Commonwealth Ombudsman Office. The establishment of this position was seen as a key mechanism in balancing the rights and responsibilities of the Australian Tax Office (ATO) and of the taxpayers. Publicity about and accessibility to the tax ombudsman are considered key performance objectives of the ATO. Areas of tax administration investigation undertaken by the tax ombudsman include debt recovery actions, decisions to bankrupt, conduct of audits, provision of advice, method of handling inquiries, remission of penalties, handling of correspondence, and delays in decision making. We note these areas in particular were all raised by submitters as problem areas with the department.
The Chief New Zealand Ombudsman, Sir Brian Elwood, submits there is no point in establishing a parallel office to his unless the powers of the tax ombudsman are radically different from those which apply to the existing Ombudsman.
Sir Brian also submits that the investigation of complaints about the administration of the tax laws of New Zealand currently rests with the Ombudsmen as part of their general jurisdiction. The Ombudsmen undertake a review function and have the necessary statutory powers to enable them to do so. Sir Brian’s view is that, given this background, there is no need to establish a separate and stand-alone Tax Ombudsman Office. If a specialist tax position was established along the lines of the Australian example, Sir Brian submits that additional resources would be required to undertake investigations. He suggests that the cost of additional specialist resources to deal with tax administration investigations would be less than the cost of establishing a stand-alone Tax Ombudsman Office.
We agree and note the majority of submitters on this issue are seeking a means of redress for administrative actions on the part of the department. There was no support for a separate tax ombudsman to investigate technical tax issues which, we agree, are best left for the courts to determine.
On a related issue, Sir Brian submits that the department has a statutory obligation to advise taxpayers of their right to seek redress from the Ombudsman. He suggests the department be required to inform a complainant, dissatisfied with the results of an internal inquiry, that they are able to lodge a complaint with an external review agency, such as the Ombudsman or the Taxation Review Authority. Sir Brian also suggests the Commissioner operate an internal complaints system headed by a complaints review officer who reports directly to the Commissioner. The Ombudsman further recommends section 81 of the TAA be reviewed so that taxpayers’ access to information held about them by the department is improved. We deal with this issue elsewhere in this report.
Need for effective departmental complaints service
We conclude that the establishment of a separate Tax Ombudsman is not necessary. We do not think the cost of such an establishment (estimated at approximately $1 million) is warranted, especially as we do not recommend that a tax ombudsman exercise determinative powers in respect to technical tax matters. We agree that the current powers of the Office of the Ombudsman are sufficient to investigate complaints of tax administration.
We believe there is a public perception that a fundamental imbalance exists between the powers of the department and the taxpayer. Recent changes in the tax laws have imposed on taxpayers significant compliance obligations, the department has at its disposal extensive investigatory powers which are less well supervised than those of the Police, and the burden of the “onus of proof" all combine to produce an impression that it is impossible and perhaps foolhardy to “take on” the department. The issue for us, therefore, is the need to ensure the tax system provides a ready and inexpensive avenue through which taxpayers can find redress. There should not be a need for taxpayers to engage professional help to sort out unacceptable administrative performance which has already been the subject of meaningful resolution attempts by the taxpayer.
We also consider the segmentation of the department has failed to achieve the desired outcomes in respect of problem resolution. Before initiating an investigation into a complaint, the Ombudsman must be satisfied that genuine efforts have been made to resolve the dispute through the department’s dispute resolution procedures. In the case of tax administration issues, we do not consider the current procedures of officer/manager resolution followed by an approach to the Commissioner or a Member of Parliament represent such an effort. We believe that a greater onus on the department to provide an avenue for problem and complaint resolution is required.
We recommend a problem resolution service, similar to that established in 1989, be reinstated. We recommend the department commit adequate resources to this service in terms of experienced personnel and personnel committed to “win-win” outcomes. We believe that if such a service is set up many taxpayer issues will be resolved at an early stage at the least personal and financial cost to taxpayers concerned. If this is done, we feel that recourse to the Office of the Ombudsman will be limited to the more serious cases of alleged mistreatment. We also consider that such a service, if properly resourced and well publicised, will be seen as a significant step by the department to improving equity in the tax system.
We consider the Office of the Ombudsman should be augmented by the establishment of a tax specialist with appropriate resources as in the Australian practice.
- the department re-establish a problem resolution service with experienced personnel committed to customer satisfaction outcomes
- the department ensure that the problem resolution service, once established, is well publicised
- the department advise all complainants, dissatisfied by the results of an internal inquiry, of their rights to appeal to an external agency
- the Government establish a specialist tax adviser position within the Office of the Ombudsman with appropriate resources to investigate matters of tax administration by the department. We consider establishing a separate tax ombudsman’s office is not desirable.
11 In 1996/97 there were 80 complaints, in 1997/98 this rose to 119, and in the 1998/99 year the total number of IRD-related complaints was 189.