IRD forgives millions in ‘shortfall’ penalties

The taxman forgave more than half of the ‘‘shortfall’’ penalties it imposed on tax-avoiders, evaders and careless nonpayers in the last tax year.

Shortfall penalties are imposed on those who fail to pay their tax whether by accident, or on purpose.

And in the year to June 30, the Inland Revenue Department ( IRD) imposed $57.3 million of them, the annual Shortfall Penalties report shows.

That was up by nearly a third from $43.3m the previous year.

But that does not include $85.2m of shortfall penalties that were assessed, but forgiven either fully or in part because a taxpayer made a voluntary confession to the taxman, or co-operated in its investigations.

There has been an international focus on ensuring everybody pays their fair whack of tax since tax takes dipped around the western world following the global financial crisis.

In recent weeks, revelations about how HSBC’s Swiss-banking operation helped the rich of multiple countries, New Zealand included, hide their money have kept the issue in the spotlight.

The shortfall penalty report does not identify how people evaded tax using overseas accounts, but figures from the IRD indicate a proportion of the 5984 shortfall penalties imposed were for hiding money overseas.

The IRD said it assesses about 200 taxpayers a year and collects about $10m of additional tax from ‘‘offshore compliance activities’’.

There were 2449 shortfall penalties imposed on tax evaders totalling just over $15.1m, nearly double the previous year’s penalties, though it would have been over $30m had the IRD not reduced penalties for previous good behaviour.

Tax specialists say the IRD has invested significantly in sniffing out companies, trusts and individuals not paying the tax they should.

That crackdown has had a big effect, said PWC tax partner Geof Nightingale.

‘‘Corporate behaviours have changed and become more conservative because of the successes the IRD has had with its anti-avoidance cases,’’ Nightingale said.

They worry about the reputational damage that a big court battle can bring, he said.

That will mean fewer big wins available for the taxman.

Instead, Nightingale said the IRD should put more effort into the ‘‘black economy’’, the mass of untaxed economic activity, including services paid for in cash which go unreported, and on which GST is not paid.

KPMG tax partner Tony Joyce last year called the IRD ‘‘one of the most aggressive revenue authorities in the developed world’’ and said there was little extra tax to be had from big companies.

Nobody knows how big the black economy is, but Joyce quoted an estimate of up to $20 billion a year.

The IRD uses a rising scale to determine penalties according to the level of offending. Simply failing to take ‘‘reasonable care’’ earns a penalty of 20 per cent of the unpaid tax. Gross carelessness lifts that to 40 per cent.

Taking an ‘‘abusive’’ tax position can double the tax payable.

Evading tax risks a 150 per cent penalty.

New Zealand’s innings is progressing nicely, although the boundaries are shorter at this time of year, says economist Cameron Bagrie.