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Taxman cuts more deals 28 Oct 2011
Rob Stock reports on stuff.co.nz how “the taxman is doing more deals with struggling taxpayers, allowing them to pay overdue debt by instalment.”
 
Not only does that save companies from failing and avoids driving individuals to bankruptcy, it also improves debt repayment levels.
 
The latest IRD annual report shows debt – a mix of overdue tax, penalties and penalty interest – of $1.15 billion at June 30 being paid back under instalment deals compared to $938 million at the same time the previous year.
 
That’s a rise of 23%, and IRD commissioner Bob Russell said it was part of a strategy to deal with tax debts, which have mounted from $3.66b at the end of June 2007 to just over $5.5b at the end of June this year.
 
Russell said research has shown that the older tax debt becomes, the more uncollectable it is, which has led to a focus on tackling it before it is swollen by penalties and penalty interest to the point debtor taxpayers give up on it.
 
Typically, after two years the amount an overdue taxpayer owes is more than half composed of penalty fees and interest.
 
Russell said the IRD had allowed tax agents to negotiate deals for their clients which helped to enact the policy, as well as engaging in phone campaigns to target indebted taxpayers early.
 
“We know, just as banks do, that the earlier you intervene, the more success you have. The longer you leave it, the more the penalties and interest stacks up,” Russell said.
 
The strategy was working, he said, pointing to the breakdown of tax debt by age. Debt owed for less than two years has fallen, most notably debt of a year or less in age.
 
Research had indicated that, particularly among smaller businesses, targeting debts early paid fruit.
 
“In the early days, the owners worry about penalty interest, but the longer it goes on, it becomes a disincentive to pay up.”
 

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