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Disclosure of bad debt customers improves compliance

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Wellington, November 4, 2017

An Auckland company has become the first entity that the Inland Revenue Department (IRD) has reported to credit agencies over the size of its tax debt.

The Department was given the power earlier this year to disclose a company’s tax debt to approved agencies to give other creditors better protection.

Inland Revenue Collections Manager Stuart Duff said that he had heard from many frustrated creditors over the years, which have done business with companies unaware that they had a significant tax debt on the books.

PAYE, GST debt

“The law now allows us to pass this information on to credit agencies if the debt is higher than $150,000. Anyone running a check on a company will then be able to see these details. This company in Auckland has significant PAYE and GST debt but has chosen to ignore us despite being been given every chance to do the right thing. Now we have the ability to report the debt so fellow creditors can make informed decisions,” he said.

Useful deterrent

The new powers have proven to be a useful deterrent for companies in a similar situation. Twenty-seven have successfully negotiated arrangements to pay off their debt, while eight firms have cleared the outstanding amount in one hit.

Taking action spares the business from having its debt reported.

Mr Duff said this is an effective measure as it takes away the opportunity for a company to hide behind its tax debt.

“This is how debt reporting happens in the commercial world and so it is good for us as government debt collectors to have this ability too.

“There are more cases in the pipeline, which meet the same criteria as the company in Auckland. However, we hope businesses will make the appropriate effort to clear their tax debt so that we don’t have to use this tactic more often,” Mr Duff said.

Information is only shared with credit agencies that meet strict security criteria. There is more information about these rules on the Inland Revenue website.

http://www.ird.govt.nz/technical-tax/general-articles/credit-reporting.html

Editor’s Note: Changes to the law earlier this year allowed IRD to disclose information about companies with significant tax debt to certain approved credit reporting agencies. A company’s tax debt over $150,000 may be disclosed to certain credit reporting agencies. This information can be critical for smaller creditors who would otherwise be unaware they were dealing with a business that has a significant tax debt.

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