Government accepts recommendations of parliamentary inquiry into IRD

The Government has accepted the bulk of the recommendations of last year's parliamentary inquiry into the powers and operations of the Inland Revenue Department.

The Government's response to the recommendations is contained in a report tabled in Parliament today.

"The recommendations of the previous Finance and Expenditure Committee have made a valuable contribution to improving various operational matters in the Inland Revenue Department," Revenue Under-secretary John Wright said today.

"The committee began its inquiry in an atmosphere of public concern about the way Inland Revenue conducted its operations."

"It's vital to maintain public confidence in the integrity of the tax system," he said. "Our tax system is based on voluntary compliance with the law. If the integrity of the system is perceived by taxpayers to decline, so too will voluntary compliance. For this reason people must see that the law is being applied in a professional manner."

"The Government supports most of the recommendations, and has given the go ahead to Inland Revenue to proceed with the implementation of the recommendations it has not yet implemented. The Government is pleased with the department's progress in addressing the recommendations," Mr Wright said.

The recommendations agreed to by the Government include:

- Taxpayers should have access to their personal information held by Inland Revenue. (The Government agrees, so long as it does not impinge upon the privacy rights of others or adversely affect the department's ability to collect revenue.)

- When deciding whether to impose a penalty, Inland Revenue should take into account the taxpayer's record of "good behaviour". It should also exercise greater flexibility when applying shortfall penalties and such penalties should not apply when a taxpayer has made an inadvertent error. (The Government has included these issues in the terms of reference of the review of the compliance and penalties legislation in the Tax Administration Act 1994, announced last week.)

- The method by which use-of-money interest is calculated should be reviewed to determine if the interest rate for overpayments and underpayments should be changed to reduce the differential between the two. (The Government has also included this in the compliance and penalties review.)

- Inland Revenue should re-establish a problem resolution service for taxpayers. (The department is developing a new complaint management process.)

- Inland Revenue should establish a taxpayers' charter outlining the rights and obligations of taxpayers. (The department is developing a new charter in consultation with interested stakeholders.)

"Some of the recommendations fall clearly within the scope of the wider review of the compliance and penalty legislation," Mr Wright said. "That is a major review of far-reaching legislation introduced in 1997. The legislation sets out the obligations of taxpayers and the standards they are expected to meet. It also prescribes standard penalties across all taxes and duties for non-compliance."

"Two changes inspired by the committee's recommendations have been included in legislation introduced into Parliament earlier this month. They introduce greater flexibility and leniency into the administration of the compliance and penalty legislation and into Inland Revenue's debt management process."

"The Government has still to decide on two of the recommendations: that of appointing a specialist tax adviser position within the office of the Ombudsmen, and shifting the responsibility for drafting tax law to the Parliamentary Counsel Office."

"The only recommendation the Government disagrees with is that to establish a board of directors to oversee Inland Revenue's operation of its powers. We believe that a board of directors would be unnecessary and would dilute the accountability between the Minister and the Commissioner. The idea was also considered and rejected by the 1994 organisational review of Inland Revenue," Mr Wright said.

Background note: The Finance and Expenditure Committee began its inquiry in April last year and reported to the government of the day in October. Mr Wright was on the committee and took part in the inquiry. As Revenue Under-secretary in the present Government, Mr Wright is responsible for overseeing issues relating to the compliance and penalty legislation, with particular reference to the Finance and Expenditure Committee inquiry.

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