Inland Revenue is collecting more overdue tax than it was a year ago, with a crackdown on PAYE, GST and student loan debt. The consistent advice from IRD and tax advisers alike: if you owe money, make contact first.
Inland Revenue is collecting more overdue tax than it was a year ago. The department has been ramping up enforcement on PAYE and GST arrears, backed by extra government funding and improvements to its systems — and it is making more use of tools like credit reporting to encourage payment. The total tax debt sitting outstanding is roughly $9.4 billion, though IRD says it is starting to bring that figure down.
The context for the increased activity was outlined by IRD's segment lead for significant enterprises, Tony Morris, who spoke on RNZ's Nine to Noon programme. He said the leniency that followed the Covid-19 period had given way to a more assertive stance on enforcement, and the department now had more staff dedicated to the work than it had in previous years.
The enforcement picture
The enforcement activity covers several areas. On PAYE and GST, Morris said IRD had been able to significantly increase its activity because of additional tagged funding from the government. On student loan debt — particularly for borrowers living overseas — there has been more public awareness following high-profile cases of people being stopped at the border, including a doctor who was arrested with $180,000 in overdue student loan debt.
The total outstanding student loan debt for overseas-based borrowers is substantial: around 100,000 borrowers with approximately $4 billion in loans outstanding, of which roughly $2.5 billion is overdue, as IRD has previously outlined. The interest rate on student loans while abroad is currently 5.6 percent, and the daily-compounded penalty rate sits at 9.6 percent per year.
Border arrests for overdue student loan debt are rare — Morris said fewer than 100 had occurred over a number of years. But the publicity around individual cases appears to have increased compliance pressure.
The consistent advice: make contact
Both Morris and tax advisers who negotiate with IRD on behalf of clients give the same first piece of advice: reach out to the department and start a conversation before the situation escalates.
"With the actual arrests at the border, we do very few of them and it's a last resort, really," Morris said. "We try to get in touch with people and get them to talk to us."
Dave Ananth, a student loan lawyer and former IRD negotiator, described the same logic from the adviser side. His work typically involves helping people who have returned from overseas and are facing a accumulated debt that includes interest and penalties. "People who have come home but haven't addressed the fact that they've been away for a long time — they still have to address the portion of the interest while they were abroad, plus the penalties at 9.6 percent a year. So I help them, looking at the facts and that sort of thing, and negotiate."
For businesses in tax debt trouble, Ananth said the objective was typically to reach a compromise that allowed the business to survive and continue operating while paying off the debt over time. "The last thing we want to do is kill a good business because of a particular episode."
Credit reporting as a lever
Morris also pointed to changes in legislation that have given IRD access to credit reporting as another tool in its kit. When a business accumulates tax debt, IRD can now refer the situation to credit agencies, meaning the debt becomes visible to other lenders and trading partners.
"So people can make their own choices whether they'll lend or trade with those entities," Morris said. The department has made approximately 100 such referrals so far. Morris said the effect had been noticeable — some businesses paid up after being referred, and others found that being flagged in the credit system meant they could no longer access loans.
How much is outstanding
The headline figure — $9.4 billion in total tax debt — is large, but Morris was at pains to distinguish between debt that was being actively managed and debt that was effectively unrecoverable. The reduction in the overall figure that IRD has reported in recent periods is due to payments being made, he said, not debt being written off. Writing off unrecoverable debt is a slow process that typically only happens after formal liquidation or completion of an audit.
For individuals or businesses sitting with an unaddressed tax debt, the message from both IRD and the professionals who negotiate with it is consistent: the earlier the conversation starts, the more options are available.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.