IRD Use Of Money Interest Rates "Usury"

IRD Use Of Money Interest Rates "Usury"

23 April 2007

"Increased use of money interest rates charged by the IRD from 8 March are usury and should immediately be reduced," said Greg Thompson, Grant Thornton Director for Taxation Advisory Services for New Zealand.

"The new 14.24% rate on unpaid tax (previously 13.08%) is excessive, particularly for Small and Medium Sized Enterprises (SMEs) who make up the bulk of New Zealand businesses. It's nearly double what it should be," stated Mr Thompson.

"The 14.24% rate is not aligned with market interest rates. Nor does it simply reimburse the government for the use of the money. The only conclusion we can draw is that the rates are, to all and intents and purposes a penalty," he said.

"The basis for setting the rates (Reserve Bank surveys of interest rates) is also inappropriate and out of touch with the realities of running an SME".

"For the SME market, at worst the rate should be no more than unsecured overdraft rates for businesses (currently standing at approximately 12.45% and sometimes less). The real borrowing rate for SME businesses is the fixed interest rate on personal homes, currently set at approximately 8.9%. SMEs often do not utilise the business interest rates preferring to mortgage their own private homes and therefore take advantage of the lower rates," explained Mr Thompson.

"If the Government were simply concerned about replacing revenue, we would be surprised if it would have to pay any more than the 6% per annum that it is currently offering in Government Stock tenders," he said.

"To add insult to injury, the rate on overpaid tax has risen to 6.66% (previously 5.71%) and the relative margins between the rates have increased from their previous positions -," noted Mr Thompson.

"These interest rates, which in some cases are unavoidable given the difficulties in estimating income accurately, are having a significant and negative impact on most businesses, especially SMEs," stated Mr Thompson.

"One can only draw the conclusion that the IRD is making an excessive return out of hardworking kiwi business people."

ENDS

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