Review of tax-evasion penalties under way ?

Press, 4 August 1977, Page 13

Review of tax-evasion penalties under way ?

Wellington reporter

It is 23 years since the penalties for tax evasion were set by the Land and Income Tax Act, 1954, but it is believed that a review of the penalties is now under way. Inland Revenue Department officers were unable to confirm that a review was taking place, but acknowledged that the maximum penalties laid down in the 1954 act had not been amended since, even in the legislation passed in 1976. The department’s annual report to Parliament for the 1976-77 year, tabled recently, said that audits and investigations continued to show that tax evasion was sufficiently prevalent to justify more’activity by the department. Increased staff resources would be needed if the department was to maintain public confidence in the administration of the tax system, the report said. The public had to be able to believe in the integrity of the tax system: voluntary compliance had to be encouraged, otherwise there would tie little incentive to be honest if tax evaders were allowed to go undetected.

As well as the penalties for evasion imposed by the courts — unchanged since 1954 — there are penal taxes for evaders, and these have naturally kept pace with inflation. This penal tax can be as high as three times the amount owing and with such a disincentive, the now paltry fines the courts can impose have not mattered so much.

The maximum penalty under the 1954 act is $2OO. This sum hardly acts as the deterrent it may have been in 1954.

The department has mounted a steadily increasing campaign against tax evaders, particularly in the last two years. The number of auditors employed rose from 98 in 1974-75 to 190 in 1975- and 192 in 1976-77. As a result, the understated taxable income discovered by the department rose from 516.5 M in 1974-75 to 529.5 M in 1975-76 and S3S.JM in 1976-

These figures show what a vested interest the department has in its audit programme to detect tax evasion. Its officers have no idea whatsoever what New Zealand’s understated taxable income is in total, but see it as “gold among the gravel,” waiting to be found. One departmental officer

said he would like to see three times as many cases covered as were being done now. This would lift the number of audits and investigations from its 1976-77 figure of 34,508 to about 100,000 a year, and raise the understated taxable income known by the department from $35.1M to more than SIOOM. However, it would also require 600 auditors instead of the present 192, with increased back-up and administrative staff as well, but with the Government clamp on staff ceilings within the Public Service, this is not feasible. Even if the Government gave approval for the staff ceiling to be lifted, the department has the problem of attracting qualified staff from outside, and then spending time giving them experience within the department so that they could fulfil the role of an auditor. Almost 42 per cent of its inspectors have less than three years experience, and there is a backlog of cases noted for fraud investigation.

In these circumstances, it is unlikely that the department could increase its auditing of tax evaders significantly, even if it had Gov<*rnment approval to increase its staff numbers.