Term of reference E
To review whether the structure, operation and culture of the Inland Revenue Department, and its understanding of the law, have affected the department’s application of the compliance and penalties regimes and the service it provides to taxpayers and their agents
- Understanding of law
- Taxpayers’ charter
The current organisational structure was put in place as a consequence of the 1994 Organisational Review of the Inland Revenue Department.
The department is structured on the basis of four business units:
- Policy Advice—responsible for development of tax policy.
- Adjudication and Rulings—undertakes the final quantification of taxpayer liability in disputed cases and provides rulings.
- Operations—responsible for providing the bulk of services to taxpayers and their agents.
- Strategic Services—provides specialist management advice to the Chief Executive and senior managers.
The Operations business unit has the most interactions with taxpayers and is responsible for providing the bulk of services to taxpayers. The provision of services to taxpayers and their agents is managed by means of a “hub and spoke” model of field delivery. There are three office types:
- Service Centres—large metropolitan hubs responsible for managing the other offices within their area with a range of centralised technical and support functions.
- Branch Offices—smaller offices, located in non-metropolitan areas providing all functions, such as services, debt and return management and audit.
- Customer Service Offices—relatively small offices which largely provide service functions centred on the operation of a public counter.
The department is in the process of implementing major structural changes as a result of the Government’s decision to implement tax simplification initiatives for salary and wage earners. Implementation of the tax simplification programme and the introduction of call centres have substantial implications for the future structure of the department.
The change process markedly alters the manner of service delivery. The call centres will respond to the majority of taxpayers’ queries. The immediate result of this will be the removal of the majority of advisory staff from the branch offices.
Call centres and electronic filing are new delivery mechanisms which will significantly change the nature of interactions with customers and the skill needs of the organisation. The changes currently affect the Operations business group. Staffing reductions of around 700 full-time positions will result and 11 of the current permanent sites will close. Most telephone calls will be centralised into five call centres.
The department is to close the nine customer service offices and its two smallest branch offices (located in Greymouth and Alexandra). Office closures are timed for March 2000. While we are generally supportive of the broad direction of the simplification programme and the restructuring, the office closures will substantially reduce the capability of the department to provide face-to-face services to taxpayers. A taxpayer facing difficulty with their tax affairs will often be able to resolve problems more easily dealing with an officer in person. Disputes and problems can thus be resolved before they escalate. Not having access to a face-to-face service may cause frustration and annoyance among taxpayers and impact on the perceived fairness and integrity of the tax system. We consider the effect of the loss of face-to-face services should be closely monitored by the next Finance and Expenditure Committee and recommend that the department investigate ways to preserve over the counter services in areas where it is closing offices, particularly in isolated areas. Initiatives such as the establishment of mobile offices and the creation of a network of agencies should be considered.
Given that the vast majority of taxpayer contacts with the department in future will be over the telephone, it is imperative that the department provides outstanding service in this area. The department has performance targets of answering:
- 80 percent of calls within 20 seconds at the Business Call Centre
- 70 percent of calls within 30 seconds at the Personal Call Centres.
We note that these targets are broadly in line with international benchmarks for call centres. We have been sharply critical of the quality of the department’s telephone services in the past. The department has responded to criticism of its service by devoting more staff to answering calls and has sought to minimise the need for people to contact the department by simplifying requirements and improving statements.
We note that around 13 percent of all calls to the call centres are currently being abandoned. This rate of call abandonment is too high. We understand that the call centres have only been in operation since April 1999 and difficulties can be expected while the system is bedded in. However, we would expect to see significant reductions in abandonment rates in the very near future. This is a matter which should be closely monitored by the next Finance and Expenditure Committee.
The quality of the department’s telephone services is dependent not only on the timeliness with which calls are answered, but also on whether queries are being dealt with to taxpayers’ satisfaction. ICANZ submits that its members complain they cannot get access to knowledgeable staff and that they are left waiting on the telephone for up to 30 minutes. Several other submissions lend support to this claim, as do the personal experiences of members of the committee. This is unacceptable. Clearly it is crucial that frontline staff have the knowledge and skills necessary to provide taxpayers with prompt and accurate service. The consequences for taxpayers when they are misinformed can potentially be dire. We recommend the department enhance its monitoring of telephone services to ensure greater timeliness and accuracy of responses and that the department identify and remedy any skills deficiencies as a matter of priority.
We understand that the Business Call Centre has been primarily staffed by employees with no background in tax matters who have been trained in the various tax questions most likely to be received. According to the State Services Commission, staff received a month’s full-time training prior to the call centre going on-line. In hindsight this appears to have been inadequate. However, as staff members spend time in the job we expect deficiencies in knowledge to be overcome, as long as staff can be retained and training is ongoing. This is a further matter which should be monitored and reported on by the next Finance and Expenditure Committee. In particular we suggest the committee should consider whether the call centres are retaining sufficiently skilled staff and should assess whether staff are being adequately trained.
A very large number of submissions complain about the department’s poor performance in the manner in which it deals with correspondence. Numerous examples were given where the department has not responded to correspondence, has been tardy in its response or has provided an unsatisfactory response. We note that the department accepts many of these criticisms. Delays in replying to correspondence are particularly unacceptable when taxpayers are in arrears and are accumulating penalties. The department needs to take particular care to deal with such cases expeditiously. This is another aspect of the department’s operations which should be closely monitored by the next Finance and Expenditure Committee. We recommend that the department take steps to enhance the timeliness and quality of its responses to written correspondence, and that the performance standard in the 1999/2000 Purchase Agreement of dealing with all correspondence within eight weeks of receipt be reviewed.
The Policy Advice division of the department contains a legislative drafting unit which, under an Order in Council made in 1994, has responsibility for the drafting of tax legislation. The department is the only Government department which is responsible for drafting its own legislation. We considered whether this is appropriate. We understand that the department was given responsibility for drafting tax bills in 1994 in order to speed up the process and to overcome some managerial deficiencies within the Parliamentary Counsel Office. We understand that these have now been resolved.
We consider that there are a number of reasons why it is undesirable to allow the department to draft its own legislation. Primarily we are concerned that allowing the department to both initiate and draft its own legislation allows tax legislation to progress without the scrutiny of an agency set aside from policy considerations. Issues of importance in the wider public policy context can potentially go unraised as a consequence. Furthermore, the Parliamentary Counsel Office and the Chief Parliamentary Counsel set drafting standards. The department is not bound by those standards. We do not consider it desirable that drafting standards and style for tax legislation differ from all other forms of legislation. Additionally, there is an efficiency argument in favour of having a single drafting agency. Having an agency competing for drafters splits the already small talent pool. We are concerned that this will lead to the more talented drafters being attracted to the department’s drafting unit if it is able to offer more attractive employment packages. This could have potentially serious implications for the overall quality of legislative drafting.
We consider that the arguments for moving the responsibility for drafting tax legislation back to the Parliamentary Counsel Office have merit and are worthy of further consideration. We recommend that the Government consider moving the responsibility for drafting tax legislation back to the Parliamentary Counsel Office.
We consider that an improvement in the accountability arrangements for the department is necessary. Given the wide powers of the Commissioner and the degree to which authority is delegated, we believe that a specialist body, in the form of a board of directors, to review the performance of the department and to review the Commissioner’s performance in discharging his or her statutory responsibilities may be desirable. This board could be modelled on the Board of Directors of the Reserve Bank of New Zealand, in that it would have a general oversight function, but would not be involved in the day to day operations of the department. We do not envisage such a board as a limitation on the statutory powers presently conferred upon the Commissioner.
Any board should be staffed by those with expertise in areas such as the management of large service organisations, customer service, tax law and information technology. Functions of the board could include providing independent reports to the Minister of Revenue on the health of the tax system, the stewardship of the department, the operation of the penalties regime and the strategic direction of the department.
Any such board should not have access to specific taxpayer information and should have no involvement in specific matters relating to the interpretation and enforcement of tax laws, tax legislation or day to day operational decisions.
We recommend that the Government consider whether establishing a board of directors to provide an oversight of the department’s operation of its powers is desirable.
The culture of any organisation stems from its leaders. Some submissions to us suggest that the department’s senior management team, including the Commissioner, have engendered a culture of punishment and fear which impacts upon both staff and in turn taxpayers. Irrespective of the extent to which this is true, we believe that there must be a cultural shift within the department, and that shift must come from the top.
We acknowledge that the department has a compliance and enforcement function which often requires it to take firm steps to ensure taxpayers are meeting their obligations. However, from the evidence we heard, we consider that the department’s culture is one which sometimes emphasises enforcement at the expense of providing a courteous and professional service to taxpayers. The fact that taxpayers have obligations which must be met does not excuse the manner in which some taxpayers have been treated by the department.
We do not consider that the department needs to use the threat of sanction as a means to encourage compliance to the extent that it currently does. The vast majority of taxpayers will willingly comply with their obligations, as long as they are treated civilly and are made aware of their responsibilities. We do not question that the law will at times need to be firmly enforced. However, we believe that the pendulum has swung too far towards the use of sanctions and threats to enforce compliance. Taxpayer satisfaction must become paramount for the department.
Having said that, we do not wish to denigrate the department’s employees. We believe, however, that the level of communication between National Office and the coalface needs improvement. The Public Service Association spoke to us of a culture of “punishment and fear” in the department and of management imperatives which stress efficiency and speed over quality of service. It believes such an approach can lead to undue pressure being placed on staff to meet unrealistic or inappropriate performance targets, which in turn can lead to a breakdown in the department’s relationships with taxpayers.
What we consider is required is an attitudinal shift. This shift needs to come from senior management and involve a restatement of values focussing on the needs of the department’s customers.
We consider that it is imperative that the Commissioner strongly re-emphasise to staff the importance of the values and behaviours that contribute to a strong organisational culture. There are currently seven Organisational Commitments which were developed in 1996 and are included in the department’s Code of Conduct for staff. They are:
- Recognising and meeting customer needs. Providing an effective customer service by pursuing excellence and being fair, efficient and responsive to the diverse needs of customers, and constantly looking for better ways of doing things.
- Highly ethical behaviour. Maintaining the highest standards of trust, confidentiality and integrity in work and relationships with others.
- Positive work environment. Encouraging open communication and cooperation, making use of the widest range of skills, experience and diversity and providing opportunities for development.
- Encouraging voluntary compliance. Seeking to make compliance easier and less costly while being fair and firm with non-compliers.
- Recognising the importance of cooperation. Working together to improve job satisfaction and achieve better results.
- Treaty of Waitangi obligations. Seeking to meet treaty obligations and providing opportunities for staff to further develop their understanding of Māori and their working relationships with Māori.
- Exercising good judgement. Exercising good judgement while promptly correcting any mistakes and learning from them.
We understand that these commitments form the base on which core competencies for staff are built.
We consider the commitments themselves, if adhered to, are appropriate to the work the department has to undertake. Clearly, however, the evidence we heard points towards instances where these commitments were not being followed, and an example not being set by senior management. Our attention was drawn to inappropriate cartoons in the department’s internal practice documents. While we accept the Commissioner’s statement that no one in the current senior management team was aware of the cartoons until recently, their very existence indicates the commitments are not being reinforced adequately. While this specific issue has been addressed, it is the Commissioner’s duty to ensure that all staff are made aware of the commitments and to take action where it is demonstrated that they are not being followed. We expect this duty to be carried out.
Affecting cultural change in an organisation the size of the department is not a task which should be taken on lightly. However, we consider such a change is necessary to complement the proposed changes in policy and legislation outlined in this report and to maintain the integrity of the tax system. We understand that improvements in staff training will be made to assist in improving the culture. Training will focus on communication skills and customer service training as well as courses in negotiation techniques for debt management staff. We welcome these initiatives.
We recommend that the department implement, as a matter of priority, a nationally consistent training programme aimed at improving communication and customer service skills.
The department is also reviewing the form of its system-generated correspondence to improve, to an acceptable professional standard, its content and tone. Many submissions noted the heavy-handed tone of much of this type of correspondence from the department and we are encouraged that the department has pledged to act to remedy this.
We consider that the department’s relationships with small taxpayers often break down because the department does not understand sufficiently the pressures facing small businesses in meeting their tax obligations. We consider this could be remedied in part by the department initiating a programme whereby officers of the department in areas such as debt management and operations get given the opportunity to interact more frequently with the business community and small business in particular. This would enable them to get a feel for the pressures businesses work under and help to improve the working relationship between the department and business. We recommend the department consider implementing a programme along similar lines to the Business and Parliament Trust, which would enable staff to build relationships with and have greater exposure to the business community.
Tax legislation is extremely complex. The practice of tax law is considered one of the most intellectually demanding areas in large corporate law firms. We consider that improving the department’s understanding of the law is primarily a human resource issue. The department needs to attract and retain skilled tax professionals. The department’s work programme for 1999/2000 includes the implementation of new remuneration structures to ensure pay levels are appropriate to the market in those areas in particular where technically skilled staff are required to be recruited and retained.
The majority of us have no comment to make as to whether the department acted competently with respect to seeking prosecutions on “winebox” transactions. This issue has been comprehensively examined in the courts and the Commission of Inquiry into Certain Matters Relating to Taxation. We note that the Commissioner is seeking the advice of the Solicitor-General with respect to prosecuting those involved in certain winebox transactions following the recent High Court ruling overturning findings of the Commission of Inquiry. We consider this is an appropriate step to take.
Many submissions raised the idea of establishing a charter of taxpayers’ rights. Currently the department has a customer charter which sets out very simply what a taxpayer’s rights and obligations are when dealing with the department. We do not believe that this customer charter goes far enough. Very few people are aware of its existence, and a taxpayers’ charter should be widely advertised so all taxpayers are aware of what is expected of them and the department when being audited.
A more comprehensive taxpayers’ charter could be based on the following which is drawn from charters in other tax jurisdictions:
This Charter deals with your rights and obligations and the level of service you will receive in your dealings with the Inland Revenue Department. While you are obliged to co-operate with the audit process, these rights are designed to protect you from unreasonable demands, to minimise disruption of your business or personal life during the audit, and to protect you from arbitrary actions.
1. Co-operation and Professionalism
1.1 We will be client focussed and co-operative.
1.2 We will act ethically and with honesty and integrity.
1.3 We will treat you in a professional, objective and fair manner.
2.1 We will help you understand our processes and practices regarding tax collection.
2.2 We will provide you with information concerning your taxation obligations.
2.3 We will explain our decisions under the tax laws and will advise you of the identity of, and enable you to directly contact, the decision maker.
3. Privacy & Confidentiality
3.1 We respect your privacy and will treat all information collected or received as private and confidential.
3.2 This information will be kept secure and will only be used or disclosed in accordance with the law.
4. Service Orientation
4.1 We will treat you with courtesy and respect.
4.2 We will provide competent, timely and consistent service.
4.3 We will respond promptly to your letters and telephone calls.
5.1 Where practicable we will give you reasonable notice of our intention to conduct an investigation.
5.2 We will arrange a suitable time and place for an interview and allow you time to prepare your records.
5.3 We will explain the audit process and will advise you of the scope and nature of our enquiries.
5.4 We will give you an indication of how long the audit should take.
5.5 On completion of the audit we will formally notify you of the result.
6. Right to instalment arrangement
You can request to enter into an instalment arrangement if you;
Have filed your returns and paid tax on time for the past five years; and
Have not entered into an instalment arrangement before.
7. Objection, Review and Appeal
7.1 We will explain your rights and the process to you.
7.2 We will ensure that your objections are dealt with by an independent officer and without bias.
7.3 If your objection is partially or fully disallowed we will provide you with a formal statement of reasons.
7.4 If you are dissatisfied with the outcome of an objection you have the right to lodge an appeal.
8. Your obligations
8.1 We are committed to treating your complaints seriously and will endeavour to resolve them quickly and efficiently.
8.2 If you believe your rights as detailed in this Charter have not been adequately met please contact the Complaints Centre.
A further issue is whether there should be a time limit on taxpayer audits. Some submissions suggested that the department has all the power when conducting an audit. This power imbalance causes unnecessary and unwanted stress. There are many obligations imposed on the taxpayer, but the perception is that the department has few, if any, obligations imposed on it. Many of the suggestions contained in the taxpayers’ charter help to redress this concern through a commitment to responding to correspondence and phone conversations in a timely manner. Including a time limit on taxpayer audits would go one step further in imposing an obligation on the department to raise its efficiency standards and complete audits as quickly as possible. For this to work the taxpayer would in turn have to ensure all documents were provided as quickly as possible.
We believe a taxpayers’ charter similar to one outlined above would be advantageous in New Zealand. We would expect it to be widely publicised to ensure that all New Zealanders were aware of its content.
We recommend that the department establish a taxpayers’ charter to outline to taxpayers their rights and obligations in respect of the tax system.