Nurturing Collaboration: IRD Should Shift to Proactive Engagement with Taxpayers after Covid-19 articles

Consider the perspective advocated in this article, as opposed to IRD’s recent tough stance on the construction industry as reported in recent news by RNZ, “IRD targets construction businesses failing to pay taxes“.

In the realm of tax administration, the Inland Revenue Department (IRD) plays a crucial role in ensuring compliance and fostering a fair economic landscape. However, the traditional approach of wielding the stick to enforce regulations is proving to be increasingly ineffective, particularly in times of economic uncertainty. Instead, there is a growing recognition of the need for a proactive engagement strategy that emphasizes collaboration and understanding.

Section 6A of the Tax Administration Act 1994 serves as a guiding principle, advocating for fair treatment and balance in tax matters. While it underscores the importance of everyone paying their fair share, it also acknowledges the need for flexibility and empathy, especially in challenging times. One of the key aspects of this approach is understanding the domino effect that tax decisions can have on businesses, particularly when contracts are cancelled, or economic conditions deteriorate.

To effectively navigate these complexities, IRD must undergo a paradigm shift towards proactive engagement. This involves not only reaching out to taxpayers but also getting staff trained to understand the intricacies of business operations. By equipping employees with the necessary skills and knowledge, IRD can better detect fraudulent activity while also fostering a deeper understanding of the challenges faced by businesses.

It’s important to recognize that the business landscape is dynamic, with fluctuations between good and bad times, more so after the Covid 19 lockdown. During periods of hardship, businesses may struggle to meet their tax obligations, but blanket enforcement measures are unlikely to yield positive outcomes. Instead, IRD should adopt a more nuanced approach, one that encourages dialogue and seeks compromise whenever possible.

While some may advocate for swift enforcement, including advising clients to shut down so-called “phoenix companies,” a more constructive approach is to invite taxpayers to engage in discussions. By offering a platform for open dialogue, IRD can explore alternatives and work towards mutually beneficial solutions. This not only helps to avoid the costly and time-consuming process of litigation but also fosters a sense of trust and cooperation between taxpayers and the tax authority.

Central to this approach is the idea of stress-free engagement. Recognizing the anxiety and uncertainty that can accompany tax matters, IRD should strive to make the process as smooth and transparent as possible. Offering free consultations, such as 30-minute sessions with no cost, can encourage taxpayers to come forward and seek assistance without fear of judgment or reprisal.

In conclusion, the shift towards proactive engagement represents a positive evolution in tax administration. By fostering collaboration, understanding, and empathy, IRD can navigate the complexities of tax compliance more effectively while also building stronger relationships with taxpayers. Through dialogue and compromise, we can work towards a fairer and more equitable economic landscape for all.

If you are in need of professional tax advice please get in contact with us.

Dave Ananth, a Special Counsel at Stace Hammond lawyers, brings a wealth of expertise in tax law. Formerly a Director at Ernst & Young, Malaysia, and a prosecutor at the NZ Inland Revenue Department, he possesses deep knowledge and experience. Ananth is adept at negotiating directly with the IRD, accountants, and other professionals in the tax and commercial realm. His wide networks extend to Asia and other international jurisdictions, enhancing his capabilities.

Contact him at: davea@shlaw.co.nz

Phone: +64 21 021 68888