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The Inland Revenue is adding another tool to its toolbox in its quest to ensure business owners are paying their fair share of tax.
A discussion document released in July 2021 outlines how Inland Revenue is extending its powers to obtain data on individual businesses to ensure they are declaring all of their income. This collection of data will apply to all businesses with less than $30m value through a payment service provider.
It is packaged as enabling Inland Revenue to provide quicker, simpler more accurate services to taxpayers, such as automatic refunds without the need for a tax return. In order to do this however, Inland Revenue will have access to a business’ sales data to ensure income has been declared correctly.
The discussion document asks the public to share their views on Inland Revenue’s ability to collect bulk lots of data from payment service providers. Payment service providers are banks and other third-party businesses who facilitate payments for goods and services between customers and merchants. Submissions close on 20 August 2021.
While the collection of data by Inland Revenue is not new, currently it can only be done on an ad hoc basis such that each time Inland Revenue wish to obtain data on a business from a third party, a notice needs to be issued under the Tax Administration Act. Given the majority of business transactions are now electronic, Inland Revenue want to receive regular data from payment service providers so they can check business taxpayers are complying with their tax obligations and paying the correct amount of tax. In addition, Inland Revenue will use this regular data to establish benchmarks and expected cash ratios for industries and areas to easily identify businesses who fall outside the ratios.
The data will be collected from payment service providers quarterly and will consist of a business’ aggregated monthly income data, including debit, credit, cash out and refunds (both volume and value) as well as the business’ identity and contact information. Individual transactions at the customer level will not be obtained to ensure individual customers will not be identifiable.
In addition to the above, the business’ bank account number will also be provided to the Inland Revenue. The reasons provided in the discussion document for collecting bank account numbers is in order to “aid with data matching, to calculate total transaction values and to access records”. The latter reason does raise a level of concern if this implies that Inland Revenue intends to have access to a business’ bank records without the business’ knowledge. Clarity on this should most definitely be sought.
The increased data collection will no doubt be beneficial to revenue collection in a number of ways, such as to determine if a business should be registered for GST, to ensure a business is returning PAYE on the correct basis, and to highlight potential under-reported income. It does however raise the question of where will this all lead too?
If Inland Revenue have access to monthly business data, similar to what they currently do with wage and salary earners, will Inland Revenue look to use this to auto assess businesses for taxes such as GST and income tax? Watch this space.