NZ Initiative in stopping large tax debts

It is becoming more and more frequent to see companies liquidate owing huge amounts of money to IRD, ie the taxpayer. While part of being in business is the risk of failure, it is unacceptable to have businesses continue to operate by virtue of simply not paying their taxes.

The NZ Initiative has a report on this, and a solution.

This is not a small problem. There is currently $8 billion in tax arrears owing.

They proposed a law based on the German model, being:

• If a a company fails to remit its collected taxes, such as GST and PAYE, by their due date, they have somewhere between 30 and 90 days to remedy this.
• If they have not remedied this within the deadline, they must place the company into a formal insolvency process like administration or liquidation
• If a director failed to place the company into insolvency by the deadline, they would assume personal liability for the unpaid GST and PAYE

I think this looks like a very good model, and one that all parties in Parliament should look at. No one wants companies going bust owing taxpayers huge amounts. This would presumably also apply to unions, such as UNITE which failed to pay PAYE on time over a long period.

The Initiative suggests the deadline for action should be 30, 60 or 90 days. I think 30 is far too short. If you accidentally missed a payment just before Xmas, and were away for a few weeks, you could suddenly find yourself personally liable.

I think 90 days is about right. If a business is having financial problems, it can take some time to work out if it is just a cashflow timing (your customers are late paying you, but they will), or a structural issue (you are losing money).