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Inquiry into the powers and operations of the Inland Revenue Department Government response to the

Introduction

The Government welcomes the report of the previous Finance and Expenditure Committee, which provides a valuable contribution to improving various operational aspects of the Inland Revenue Department.

The Committee commenced its Inquiry in April 1999:

  • following a growing public concern over the manner in which the Inland Revenue Department conducted its operations
  • with an intention to assess the impact of, and holding the Government accountable for, the compliance and penalties legislation.

The terms of reference for the Inquiry included reviewing the:

  • powers of the Commissioner of Inland Revenue
  • application of the compliance and penalties regime
  • department’s debt management practices
  • feasibility and desirability of establishing a tax ombudsman
  • department’s structure, operation and culture.

The Committee’s Inquiry was completed in October 1999. The Committee’s recommendations are comprehensive and are intended to improve the integrity of. and the public’s confidence in, the tax system.

The Government and Inland Revenue are particularly concerned with maintaining public confidence in, and the integrity of, the tax system[1]. New Zealand’s tax system is based on voluntary compliance, which can be eroded by perceived lack of fairness of, or inappropriate actions taken by. the tax administration.

The Government supports most of the recommendations made by the Committee and has instructed Inland Revenue to proceed with the consideration and implementation of the agreed recommendations. These include two Machinery of Government recommendations that the Government and associated agencies still have to consider and make decisions upon.

The Government can report that Inland Revenue has made good progress in considering and implementing the Committee’s recommendations since the release of the Committee’s final report.

A number of the recommendations have been addressed, and Inland Revenue is undertaking work on the remaining recommendations. Some of this work is being undertaken within the post-implementation review of the compliance and penalties rules.

This review, which commenced in October 1999, will assess the impact of the legislation on the public and present policy options for discussion. A Government discussion document is planned for release in February 2001. Depending on the extent of the submissions made by the public and subsequent Government decisions there could be changes to legislation. Attached, as Appendix One, is an update on the post-implementation review of the compliance and penalties legislation.

The Government recently introduced three amendments improving the fairness of the current compliance and penalty rules. These amendments are part of the Government’s response to some of the issues raised in the Finance and Expenditure Committee’s Inquiry. The amendments are:

  • reducing the incremental penalty from 2% a month to 1% a month on late paid tax
  • increasing the “grace” period before use-of-money interest starts
  • standardising the serious hardship and financial difficulty provisions across most taxes.

Specific information about the Government’s response to each recommendation is outlined below.

The Government responds to the Finance and Expenditure Committee’s report in accordance with the general requirements of Standing Order 248 (1) but taking into account the dissolution of the 45th Parliament within the timeframe prescribed in Standing Order 248 (1).

 

1 Sections 6(1) and 6(2) of the Tax Administration Act 1994 charges Ministers and officials of Inland Revenue with the responsibility of protecting the integrity of the tax system.