Bill English announced in his recent Budget that he was giving the IRD an extra $78.4m over the next four years to fund increased audit activity. This is likely to have disastrous consequences for those small business owners who keep poor accounting records and have prayed they have stayed “under-the-radar”.
The IRD has begun to flex its muscles and in a recent case, an Auckland tax payer was sentenced to 22 months’ imprisonment after he pleaded guilty to charges of tax evasion of approximately $170.0k.
Chandar Prakash admitted deliberately evading tax assessments and avoiding paying tax over a 5 year period during 2001 to 2006. He was declared bankrupt in 2009 and fled the country to Fiji – 4 weeks before his court appearance. He returned 2 years later.
Graham Tubb, IRD’s Acting Group Manager of Assurance, advised that Prakash’s non-appearance resulted in significant additional expenses to the Department. “This is a case of very serious, deliberate and repeat offending. Prakash de-registered for GST in 1996 while working as a courier driver but did not re-register when he started working as an architectural draftsman in April 2001. He ceased filing Income Tax returns in 2000 and did not return any GST owed to Inland Revenue even though he charged GST when invoicing clients of his architectural practice.”
Graham Tubb went on to say that Prakash’s dishonesty was clearly evident after he borrowed funds to buy 2 houses in 2006 which were both valued at more than $430.0k. He also bought a vehicle costing $80.0k in the following year.
The cost to New Zealand tax payers exceeded $1.0 million as a result of the IRD writing off tax assessments, penalties, interest and student loans.
“New Zealand’s tax system is based on voluntary compliance and it works well because the majority of people understand the importance of doing the right thing. Prakash has over ten years of business experience and is fully aware of his tax filing and record keeping obligations. Inland Revenue has attempted to assist with his tax affairs, yet he continued to be non-compliant and refused to provide documentation with the intention of not paying tax. As a result of his actions, Prakash has ended up in court, and this sentence shows that Inland Revenue and the courts view his offending seriously”. Mr Tubb added.
Budget 2012 will make it even more challenging for many small businesses. Owners who tempt fate by keeping poor accounting records may look to expert advice as being essential and no longer a “nice-to-have”. Many will seek the help of a chartered accountant for regular monthly accounting services as a precaution rather than living in fear of the tax man banging on the door.
Would you risk it?