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Research reinforces need for simpler, easier tax processes

Recent research carried out by Victoria University and Inland Revenue (IR) underlines the importance of making tax processes easier and simpler, particularly for the self-employed and small business sector, says Inland Revenue marketing and communications manager, Andrew Stott.

The research carried out last year suggests that the self-employed sector may be under-reporting income, perhaps mistakenly or sometimes deliberately, by an average of 20% a year. The research was looking at data from 2006/7, 2009/10 and 2012/13.

“We can’t say from this that large numbers of self-employed are deliberately under-reporting,” said Mr Stott. “Most Kiwis report fully and honestly and want to get it right.

“This research suggests an average figure that could mean a small number underreporting deliberately and a larger number simply not getting things right in their returns.”

For Inland Revenue, the research results feed into issues IR has already identified related and that are driving the objectives of the $1.5b transformation programme.

“The new systems and processes transformation is bringing will help more people get their returns right first time – and make it harder for them to make mistakes,” says Mr Stott.

“Also we’re really pleased to see people’s attitudes toward tax changing for the better and we’ll continue with public communications to build understanding and awareness of tax, how it works, what the benefits are and the obligations.”

He said research carried out since 2011 showed some important gains:

  • Fewer people  saying they’re likely to ask for a ‘cash price’ knowing that tax is less likely to be paid on it - 18% in 2017, down from 27% in 2011    
  •  A steady decrease in those saying that they participated in cash jobs from 34% in 2011 to 25% in 2016/17
  • And 90% of those surveyed in 2016/17 say paying tax is the right thing to do – this figure has run at that level since 2011.

“These are encouraging results but there’s still plenty of work to do,” said Mr Stott.

“Making it easier to get tax returns right and raising awareness and understanding of what not to do and why paying tax is good for us all is really important.  The more success we have in helping people get things right, the less we have to audit and chase people up.

“Having said that, there are still people deliberately under-reporting and avoiding tax and our transformation will considerably enhance our ability to deal with them.

Research methodology

The recent study used anonymised data collected by the Statistics NZ Household Economic Survey (HES) and data from Inland Revenue, all of which is linked in the Stats NZ data warehouse known as the Integrated Data Infrastructure (IDI). The research linked declared incomes from the self-employed and from people on salaries, with expenditure for the same households.

The comparison showed a discrepancy where households with similar levels of spending had different declared income levels. Some self-employed households appeared to have significantly lower levels of declared incomes to support the same levels of spending - suggesting under-reporting of income to Inland Revenue.

“We’re sure that a great deal of this under-reporting is error and inadvertent omission, though we also know that some is deliberate avoidance” Mr Stott said. “But either way this is an important issue and something Inland Revenue will continue to work on.

“The strong focus on this area complements the progress we’re making on multi-national corporate tax compliance through the base erosion profit shifting (BEPS) work we’re doing with the OECD,” he said.

Special note: IDI data cannot be used to identify any individuals or businesses and cannot be used for measuring specific entity compliance.

Read the full research paper here.

Media contact: Rowan McArthur 029 890 1251