IRD facing challenges in $1.5b tax upgrade

INLAND REVENUE expects the project to replace its computer system and modernise the tax system to cost up to $1.5 billion, but in spite of the massive budget, or perhaps because of it, there seems to be almost an assumption that the business transformation programme will fail.

Revenue Minister Todd McClay and Inland Revenue deputy commissioner Greg James addressed more than 100 technologists at a breakfast organised by the Institute of Information Technology Professionals in Wellington on Thursday.

The first question from the audience was why the public sector, having botched far smaller projects like Novopay, reckoned it was qualified to pull off one possibly costing $1.5b.

Inland Revenue faces at least two tricky decisions. James says it plans to keep its existing First computer system running in parallel with its new computer system for a period.

That’s a seemingly sensible lesson from Novopay. But running two taxation systems in parallel won’t be as simple as running duplicate payroll systems. The challenge is that at the same time as replacing its computer system, Inland Revenue will be attempting, in McClay’s words ‘‘the biggest change in the tax system, almost ever’’.

The main reason Inland Revenue is replacing First is that its 40 million lines of Cobol code can’t easily be adapted to meet new requirements, so it stands to reason that First won’t be able to run the new tax system in parallel with the department’s new computer system, only the old one.

The second, related dilemma is how ambitious the modernisation programme should be. The Government would love to move to a system where individuals’ and businesses’ tax affairs were reconciled in ‘‘real time’’.

If Inland Revenue could keep a constant running tab on everyone’s taxable income and tax payments, it could do away with both provisional tax and the controversial tax refund industry. People and businesses could instead be taxed right first time, all the time, and politicians could claim taxpayers had got a lot in return for the $1.5b spent.

McClay said at the IITP breakfast that early research suggested as much as 2.5 per cent of the country’s gross domestic product might be eaten up by tax compliance.

But a fully automated, real-time tax system is probably a pipe dream and might throw up some anomalies.