Like many directors in a similar bind, I dithered. There is irony now that I find myself on the other side of that table; being a liquidator rather than the liquidated.
One aspect of that experience was the Inland Revenue. When the time came, I had to make a choice. Do I pay my staff or the GST bill? It wasn’t a difficult decision. Few business owners would place their moral obligations to staff over the legal one to the Commissioner of Inland Revenue.
Events moved quickly and the business ended. As was appropriate. It was personally traumatic and financially catastrophic but, as I said, not the first time I’d endured such a crisis. I’d been through worse and recovered soon enough.
Running a business is one of the hardest things an individual can commit to. There is no respite from the pressure to deliver for customers, demands from staff, tension from creditors and your own expectations.
And that is before you have to deal with the competition; where other people are working tirelessly to take your customers, employees and ideas. A few succeed beyond their own grand hopes but most of us toil away, chasing the dream even as each year drives home the reality that we are more Arthur Daley than Jeff Bezos.
One of the insecurities that bedevils business owners is how the guy next door is succeeding, when we are not? I know I face this frustration, as I see my competition getting better contracts and driving nicer cars. Are they really better than me at doing the mahi, or just at sales?
Well. Maybe it’s something else.
As at March this year there is $2.5 billion in uncollected GST and $1.3b in PAYE.
The IRD collects nearly $25b a year in GST. Now, it isn’t clear how old that unpaid GST is, but of the $6.7b in outstanding tax on the books, the IRD claims only $3b is over two years old. I’m picking that it writes off most of the uncollected debt so, back of a post-it-note, 5% of GST isn’t collected.
The numbers are similar for PAYE and income tax. So. Here is the deal. If you are in business; working 10 hour days stressing about how to pay the wages and where the money for the rent and IRD is going to come from, you should know that one of your competitors isn’t paying the IRD.
This does not mean they are dishonest; although some of them are. They are in business, juggling a dozen things each day and hoping not to drop too many. And like me in a past life, sometimes a GST bill is paid past the due-date. Or not at all.
Sometimes revenue rises and you catch-up. Most of us in business have paid a bill late and all of us have had tardy debtors. But sometimes the drop in revenue isn’t seasonal. It is systemic. The tax bill racks up and the IRD charges penalties and interest that quickly becomes exponential.
Soon you become part of that 5%, and if you are lucky the IRD will move quickly to force a decision, but mostly that doesn’t happen. The IRD isn’t very effective at debt collection. It works on a trust- and- don’t- verify regime where firms declare their own liabilities and there are no consequences for not meeting them.
Eventually, often years after the first default, enforcement action will begin but by then the damage has been wrought. A zombie firm has been allowed to trade, sucking in people and resources that should have been released to better-run companies and rivals have been forced to compete with a business with a massive competitive advantage thanks to its non-payment of GST and PAYE.
Occasionally, the Revenue will drop an anvil onto the head of a delinquent director to showcase the consequences of non-payment, but these are isolated and infrequent and consequently not a deterrent.
Now, as the disclaimer makes clear, I’m a libertarian. Tax is theft and all that; but we don’t live in a libertarian paradise and I’ve yet to meet a director who didn’t pay tax on principle. If we are going to have a taxation regime, the IRD should enforce its own rules.
The IRD recently secured an extra $29 million for enforcement and plans to use this chasing student loans and harassing a few construction firms.
This will do little. The IRD needs a systematic process to chase unpaid taxes to ensure that those directors who do pay their debts are not compelled to compete against those who do not.....The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
Events moved quickly and the business ended. As was appropriate. It was personally traumatic and financially catastrophic but, as I said, not the first time I’d endured such a crisis. I’d been through worse and recovered soon enough.
Running a business is one of the hardest things an individual can commit to. There is no respite from the pressure to deliver for customers, demands from staff, tension from creditors and your own expectations.
And that is before you have to deal with the competition; where other people are working tirelessly to take your customers, employees and ideas. A few succeed beyond their own grand hopes but most of us toil away, chasing the dream even as each year drives home the reality that we are more Arthur Daley than Jeff Bezos.
One of the insecurities that bedevils business owners is how the guy next door is succeeding, when we are not? I know I face this frustration, as I see my competition getting better contracts and driving nicer cars. Are they really better than me at doing the mahi, or just at sales?
Well. Maybe it’s something else.
As at March this year there is $2.5 billion in uncollected GST and $1.3b in PAYE.
The IRD collects nearly $25b a year in GST. Now, it isn’t clear how old that unpaid GST is, but of the $6.7b in outstanding tax on the books, the IRD claims only $3b is over two years old. I’m picking that it writes off most of the uncollected debt so, back of a post-it-note, 5% of GST isn’t collected.
The numbers are similar for PAYE and income tax. So. Here is the deal. If you are in business; working 10 hour days stressing about how to pay the wages and where the money for the rent and IRD is going to come from, you should know that one of your competitors isn’t paying the IRD.
This does not mean they are dishonest; although some of them are. They are in business, juggling a dozen things each day and hoping not to drop too many. And like me in a past life, sometimes a GST bill is paid past the due-date. Or not at all.
Sometimes revenue rises and you catch-up. Most of us in business have paid a bill late and all of us have had tardy debtors. But sometimes the drop in revenue isn’t seasonal. It is systemic. The tax bill racks up and the IRD charges penalties and interest that quickly becomes exponential.
Soon you become part of that 5%, and if you are lucky the IRD will move quickly to force a decision, but mostly that doesn’t happen. The IRD isn’t very effective at debt collection. It works on a trust- and- don’t- verify regime where firms declare their own liabilities and there are no consequences for not meeting them.
Eventually, often years after the first default, enforcement action will begin but by then the damage has been wrought. A zombie firm has been allowed to trade, sucking in people and resources that should have been released to better-run companies and rivals have been forced to compete with a business with a massive competitive advantage thanks to its non-payment of GST and PAYE.
Occasionally, the Revenue will drop an anvil onto the head of a delinquent director to showcase the consequences of non-payment, but these are isolated and infrequent and consequently not a deterrent.
Now, as the disclaimer makes clear, I’m a libertarian. Tax is theft and all that; but we don’t live in a libertarian paradise and I’ve yet to meet a director who didn’t pay tax on principle. If we are going to have a taxation regime, the IRD should enforce its own rules.
The IRD recently secured an extra $29 million for enforcement and plans to use this chasing student loans and harassing a few construction firms.
This will do little. The IRD needs a systematic process to chase unpaid taxes to ensure that those directors who do pay their debts are not compelled to compete against those who do not.....The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
2 comments:
Damien ,The issue of companies and business not protected from some IRD annual tax on profit payments by others who trade as Trusts is nonsensical. The Trust issue needs urgent attention .
The behaviour of the IRD is morally repugnant. Their failure to force payment allows the business to just suck others dry as they know the business is failing. They then get priority on payment of outstanding debts. Or miss out entirely, but don't care.
Why should they care, not their money, not their problem. Their salary is still paid, even with continual failure. Our public service needs to drop the public from its name, they care little for us.
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