This year New Zealand changed the way it handles the collection of income tax from salaried employees. Previously we had to fill in an IR5 tax form every year. This was never a very onerous task and over the years the form became progressively simpler to complete, mainly because the tax authorities stopped allowing us to claim rebates for anything. Each year I dutifully filled it in, claimed for my income protection insurance policy (the only thing left to me to claim), calculated my tax and applied for a refund of several hundred dollars. It became an annual ritual.
One year my boss made a terrible error in her PAYE calculations and it turned out that I owed the tax people nearly $800. But apart from that single glitch, I generally got a refund or at the very least broke even.
But this year everything changed. There were no forms to fill in at all. The IRD insisted that their magnificent new computer system and new reporting guidelines for businesses meant that they would have enough information on file to process employees taxes internally. All we had to do was sit back and wait and the refunds would roll in automatically.
I should have known it wouldnt be quite that simple
The tax year ended on March 31st. Round about the middle of June I received a document from the IRD which summarised my income to the end of the tax year. It was, I was gratified to note, completely accurate. Theyd even included the $30 I earned from writing a book review for a local newspaper, and they had noted the $7.50 withholding tax deducted from the $30. Included in the same envelope was a small and simple form to fill in to claim any rebates I might be entitled to. I examined the form carefully. I could claim for donations to charity, and I could claim for childcare and domestic home help, but nowhere could I claim for income protection insurance. I rang the IRD and explained my position.
"Ah," they said. "Yes income protection insurance. We didnt think of that. Ummm. Ring back in August and ask for an assessment form."
"Why do I have to wait until August? And whats an assessment form?"
"We wont have the data fully processed until August. An assessment form is a sort of replacement IR5."
"But I thought wed done away with IR5 forms this year?"
"Oh we have. Except for special cases."
So now I was a special case. I decided to follow the advice and ring back in August. Two months passed and August arrived. I rang the tax department and explained the position.
"Oh thats easy," said the man. "Have you got your details to hand? I can do it now on my computer. You dont have to fill in any forms at all. I cant understand why they told you to do that. Whats your IRD number?"
I told him and he looked me up.
"Oh dear," he said. "Oh dearie, dearie me "
"?" I asked.
"You received a payment of $30 which has $7.50 withholding tax on it."
"Thats right." I explained about the book review.
"Well because of that $30 payment and the fact that the tax was levied as a withholding tax, you are classified as a self employed person and therefore you have to fill out an IR3 form."
"But Im not self employed," I said. "Look at my income assessment. All my umpteen thousand dollars of income last year came from my salary. Except for that $30."
"Sorry," said the man. "Those are the rules. You earned $30 last year as a self employed person. So you must fill in an IR3. Ill arrange to have one sent to you. You can claim your income protection insurance on the IR3," he added enticingly.
The IR3 arrived towards the end of August. The accompanying small print informed me that IR3 forms must be filed by the 7th of July. It would appear that I was in trouble again
An IR3 is a form of enormous complexity. Among many other things, it required me to estimate my self-employed income for the next twelve months and to pay provisional tax on that estimated income. The explanatory booklet that comes with the form lists all the dire penalties that will be applied to your shivering carcass if your estimated income (and hence your provisional tax) turns out to be significantly lower than the actuality. The penalties start with ritual disembowelling for a first offence and culminate with eternal damnation and a thousand lines for subsequent offences. I estimated my income at zero, thus making my provisional tax zero as well theres no way Im going through this rigmarole again next year. If the newspaper wants another book review, they can write it themselves!
Several other questions required me to provide details of various arcane financial items of which I had never heard and whose detailed explanations in the accompanying booklet might as well have been written in Martian for all the sense they made. On the theory that Id never heard of them and therefore probably didnt have them, I filled in zero for all of these as well.
Then came the great moment. I wrote down my claim for my income protection insurance. To this I added zero a few times (strangely, the total remained unchanged) and then for good measure I subtracted zero a few times as well. This too had surprisingly little effect on the final amount. I multiplied the figure by a magic number supplied by the IRD and the result suggested that they owed me a rebate of $1,755.17. Gleefully I posted my form and sat back and waited for the money to appear.
Nothing happened. I waited a little longer and it happened again. So I rang the IRD again
When you call the IRD the phone rings forever. Eventually a robot voice informs you that you are in a priority queue, your call is very important, and if you will just hang on, someone will deal with you very soon. A recent newspaper report suggests that the vast majority of callers ring off before anyone answers them. However a phone call is much better than a letter. I know from personal experience that the tax department NEVER, EVER under any circumstances answers letters or even acknowledges their receipt. So I waited in the priority queue for nearly three hours before a human voice finally said, "Hello?"
"Ah yes, heres your file. Hmmmm. Theres a fault on it. We cant pay you until I authorise it by typing an incantation."
"Why is that?"
"Oh we dont agree with your calculation. You got the figures in Question 11 wrong, so we only owe you $716.79"
"Well if I got it wrong, but you KNOW that I got it wrong because you know what the right answer is, why dont you just correct the figures automatically and send me the $716.79?"
"No we cant do that. We have to wait until you contact us, and then well explain and then we can authorise it."
"But you never acknowledge letters and contacting you on the phone is almost impossible, so if I gave up because I couldnt get through, does it mean that youd never pay me the money you owe me? Youd keep it forever, just because I got a figure wrong in Question 11?"
"Yes, thats right." He sounded smug.
"But if you refuse to pay me money that you owe me, isnt that theft? After all if I refused to pay you money that I owe you, youd have me in court in two shakes of an accountants quill."
"Oh, of course. I should have realised. Now whats Question 11?"
"Thats the one where you have to calculate your ACC contributions as a percentage of your overall income. You estimated your ACC contributions as zero, and thats not right."
"But surely my employer paid the ACC contributions during the PAYE year?"
"Oh yes, but we discounted those payments because you are self employed so you have to calculate the payments yourself and then we credit your calculations against the money we received as ACC contributions from your employer."
"But Im not self employed!"
"Yes you are. You filled in an IR3."
"Only because of a $30 payment I received as a freelance."
"Yes, thats right you are self employed outside your regular employment."
It seemed that we were no further forward. I let my mind boggle for a while at the silliness of it.
"Well can you authorise the payment anyway?" I asked hopefully.
"Oh yes, thats easy. Now that weve discussed it."
There was a pause and I heard the clatter of keys on a keyboard.
"There, thats done," he said. "You should receive your rebate in about five days."
He was spot on. Five days later I received my $716.79.
Now just think about my taxing tale for a minute. For the sake of a $30 payment which attracted $7.50 withholding tax, the IRD held three quite lengthy telephone calls with me and made me fill in a very complicated form. A clerk processed that very complicated form and transferred its figures to my records in the IRD computer, correcting my invalid Question 11 along the way. The collection of the $7.50 tax probably cost them several hundred dollars in administration alone. Lets assume they spent $300 to collect my $7.50 tax. Thats a cost of $40 per tax dollar collected. This is not a productive ratio. If the same ratio applies to a significant fraction of this years PAYE taxpayers (and anecdotal evidence strongly suggests that it does) then the IRD must have made a significant loss this year. No wonder this country has debts that are slowly grinding it into oblivion. New Zealand must be the only country in the world whose tax department consistently fails to make a profit!