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Inland Revenue Annual Report 2022-23 – something to add to your summer reading list?

Tax Alert - December 2023

By Robyn Walker & Amy Sexton

Earlier this year the Inland Revenue published its 2022-23 Annual Report (the Annual Report). With new Commissioner Peter Mersi taking up the role in July 2022 this is his first full year Annual Report and the first full year since the Inland Revenue’s “Business Transformation” programme (BT) was completed. In the report, the Commissioner states that 99% of tax returns are now filed electronically, with more than 7 million of these returns coming directly from taxpayers accounting systems that integrate with Inland Revenue’s systems. This is a drastic change from the start of BT in 2017 when only 78.5% of returns were filed electronically.

The Annual Report’s 203 pages is divided into five sections comprising the Inland Revenue’s:

  • Contribution to the wellbeing of New Zealanders
  • Work collecting revenue, making social policy payments and the future of the tax and social policy system
  • Organisation and capability

  • Performance delivering outcomes and services
  • Financial statements and schedules

To save you from reading the whole report these summer holidays, we have selected some of the key facts and highlights from the first four sections.

Contribution to the wellbeing of New Zealanders

The total tax revenue for the 2023 year was $104.5 billion, with direct or income tax comprising 75% and GST accounting for 25%. This is up from $100.6 billion in 2022.

Overall, it cost the Inland Revenue 43 cents to collect $100 of tax revenue, a dramatic drop from 2015 when it cost 80 cents. The reasons for this drop in costs have been attributed to the increased tax revenue take and the automation provided by the successful BT programme.

Work collecting revenue, making social policy payments and the future of the tax and social policy system

Collecting Revenue

Inland Revenue has undertaken several hidden economy compliance projects during the year, including its property compliance programme which assessed additional revenue of $129 million and a real estate agent project to help educate agents about claiming expenses. After the real estate project, there was a 5% reduction in expenses claimed in the 2022 year when compared to the 2021 year.

Data analytics continues to be a key compliance tool for Inland Revenue, and it receives details of financial account information on New Zealand tax residents from nearly 100 other jurisdictions, as well as supply data to these jurisdictions. From this overseas information, checks to ensure taxpayers are paying the right tax have resulted in more than 600 voluntary disclosures over the last 3 years, resulting in $74 million in omitted overseas income being assessed.

While outside the annual report period, it notes that from November 2023 Inland Revenue will be receiving electronic sales data from payment service providers, helping to validate GST-reported sales, show the extent to which electronic and cash transactions may be under-reported and highlight businesses that may be operating outside the system.

During the 2023 year, 3,608 audits were completed by the Inland Revenue (3,080 in 2022), with a return of $8.92 on every dollar spent on compliance activities.

However, there has been an increase in the amount of taxpayer debt owed to Inland Revenue, with more taxpayers missing payments this year – 44,000 more taxpayers in debt than in the prior year. Inland Revenue states that this is consistent with current economic conditions. Inland Revenue contacted 2,580 taxpayers with significant debt who demonstrated insolvent behaviours with notices of legal proceedings, 35% of those contacted settled their tax debt in full or through instalment arrangements/part payments. 1,929 businesses entered formal insolvency in the 2023 year (1,347 in the prior year) and approximately 75% of these customers had a tax debt.

Inland Revenue continues to focus on providing certainty to significant enterprise taxpayers (more than 50 employees or turnover greater than $30 million), some key figures in the Annual Report for significant enterprise taxpayers include:

  • Account management service provided for approximately 200 companies and crown entities
  • 1,210 companies had annual compliance reviews
  • 92 taxpayers had active advance pricing agreements as at 30 June 2023, representing tax assured of $440 million a year
  • Inland Revenue issued rulings on arrangements worth $11.2 billion

The future of the tax system

Inland Revenue’s policy work this year included the fringe benefit tax (FBT) stewardship review, which found that FBT continues to deliver its primary task of ensuring remuneration from employment is taxed, whether it is paid in cash or a non-cash benefit. However, the review found that FBT does not function well, with a high administrative and compliance cost relative to the tax revenue. Some stakeholders also believe that FBT is not complied with by all businesses or enforced by Inland Revenue.

A key tax legislative change is coming that will enable New Zealand to take part in the Pillar Two 15% global minimum tax on multinational groups. Inland Revenue states that the new rule will apply to around 24 New Zealand-headquartered groups.

Organisation and capability

The Inland Revenue’s total staff turnover fell from 18.7% in 2022 to 10.1% in the 2023 year, partly due to the fewer organisation changes required since completing BT. Unplanned turnover fell from 13.4% in the 2022 year to 9.6%. Overall, the Inland Revenue headcount in 2023 was 4,130 (FTE 4,023), down from 5,009 (FTE 4,888) in 2019. The average age of an Inland Revenue employee is 45.3 years.

Performance delivering outcomes and services

During the year 1.6 million pieces of correspondence were completed and 1.3 million calls were answered. Overall Inland Revenue achieved 29 out of 36 (81%) of its output performance measures, an increase from 71% in the 2022 year. A selection of these output performance measures is set out below:

$973 million of revenue was identified or assured through Inland Revenue interventions:

The Annual Report shows it has been a pretty busy few years for the Inland Revenue with the BT programme, COVID-19 pandemic support, adverse weather events support and a new Commissioner. We are not expecting this to change over the next year with the Inland Revenues focus back on compliance and audit work and a new coalition Government.

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