18 May 2020

Tax debt balloons off back of Covid-19

11:03 am on 18 May 2020

More than a billion dollars of tax debt has accumulated, as people seek assistance from Inland Revenue in the wake of Covid-19's economic fallout.

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Photo: Supplied

New figures show in March 104,443 payment arrangements were set up with a dollar value of $1.167 billion.

A nearly 40 percent jump from March 2019, when there were 41,014 payment arrangements with a dollar value of nearly $659 million.

Tax partner at PwC Geof Nightingale said the figure was surprisingly high.

"That data is to the end of March and of course lockdown was only announced on March 23 and the real economic effects on taxpayers and businesses and people will be happening in April and May."

He said that figure was likely to blow out.

"I had a look at the Crown accounts and at March 31 2020 there was $17 billion in tax outstanding - not all of that's overdue - but compared to the same time last year that was $10.6 billion so we're already $6.5 billion higher.

"And if the tax take for the year is about $86 billion and let's say 10 percent of that's late ... you could easily blow out to be $8 to $10 billion of overdue tax by the time we get to 30 June I would've thought."

Nightingale said this had consequences for the government's books and IRD operations.

"The obvious flow-on effect is that the government has to cash-flow that, because whilst that tax is due it's not coming in the door, so they'll do that by borrowing.

"The second level is that Inland Revenue is going to have to devote resources to managing the collection. For smaller tax debts they've got automatic instalment arrangements, but for the business tax debts and late paid tax they're going to have to enter into careful arrangements, so there's quite a bit of administrative resource there."

IRD said as well as the substantial increase in the amount of debt covered by the instalment plans, the average length of payment plans in 2020 increased from just over eight months to nearly 11 months, indicating people wanted to pay less each instalment.

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