Incompetence? Dodgy dealings? Laziness? No - it's the IRD. If someone was running around hitting people over the head with sledgehammers just for the sake of it, you'd be right to be concerned. And concerned we should be, because that's exactly what the IRD have been doing. It's alarming, and both unnecessary and counterproductive.

Following the global financial crisis, the IRD have become extremely aggressive on tax collection, to the extent that they are forcing people into bankruptcy and businesses into liquidation at astonishing rates. The concern is not that those people owed money to the tax department, but that the IRD would rather ruin their lives than get any of that money back. It's not just absurd, it's alarming, and it's having dire consequences.

The IRD's pursuit of people in arrears is relentless and highly stressful, if not downright traumatic, and they seem completely unwilling to look at any kind of constructive solution. A number of people have been driven to suicide after being pursued by the IRD, and families have been destroyed because of mental health issues.

These problems stem from an inherent unhelpfulness on the part of the IRD; they appear to have a mission statement to make people's lives as difficult as possible, even if the department ends up financially worse off as a result. So what's going on?

1. The penalties regime is so aggressive that once someone gets behind it's almost impossible to get back on track.
2. The IRD has a two-year limit on repayment. In other words, you have to pay back everything you owe, including penalties and interest within two years. That's hard enough at the best of times, but in the current economy it's near impossible.
3. The IRD are completely unwilling to look at any sort of repayment arrangement that will take longer than their two-year limit. To illustrate, we have a client who owed the IRD $90,000. Now, because of penalties and interest he owes $266,000. He's offered a solution of $70,000 immediately, $20,000 in a few months, and $500 per month for the next five years. Sounds reasonable, doesn't it? But what did the IRD say? They want him to go bankrupt, which, because he has no assets, means the they would get nothing. It simply doesn't make financial sense!
4. The IRD says bankruptcy is their way of dealing with people who are inherently non-compliant. These situations could be avoided if the IRD actually stepped in to help when they notice a problem, but they don't. It's almost as if they want people to be non-compliant and go so far down the gurgler that there's no hope of recovery.
5. If someone is in arrears personally, the IRD will also try to nail them for debts their company may owe, despite the fact that they have no legal liability for that business debt because it's a separate limited liability entity. This is quite simply immoral! People are getting into utterly hopeless situations by taking on debt that is not legally theirs, just to try and keep the big bully IRD happy.
6. The IRD is taking a hostile approach to PAYE and GST arrears and heading towards criminal prosecution of business owners and directors. Yes, not paying PAYE and GST is technically stealing, but the IRD is not getting on to it fast enough or giving people a chance to sort it out.
7. The IRD, like many government departments, is hopeless at keeping people informed about what their responsibilities are. Not everyone has a qualified accountant, yet the IRD expects them to understand very complex issues, and slams them if they don't get it right. Very rarely does the IRD give any publicity about issues they are coming across - at best they bury it at the bottom of some public information memorandum that no one reads.

The solutions, however are very simple:

1. Inform people as soon as arrears are noticed.
2. Help them work out a realistic repayment schedule that maximises the return to the government, instead of sending them into liquidation or bankruptcy.
3. Keep the public informed about common issues the IRD comes across. If people are regularly stuffing up in a particular area, come out with accessible media campaigns to address those issues.
4. Help people become compliant and stay that way instead of sledgehammering them and ruining their lives. The IRD would be financially better off as a result, and the destructive stress on individuals and families could be avoided.

The sledgehammer technique employed by the IRD is vindictive bullying that doesn't serve the people or the government in the end. Stop stressing families, loosen up and be constructive! Don't set people up to fail - help them to succeed instead.


Credit: John Rowe-