The amount of GST collected but not paid to the government rose from $1.9 billion in March 2023 to $2.6b in March 2024. Photo: RNZ
A growing GST debt burden could be creating a wave of "zombie companies", one tax expert says.
Allan Bullot, tax partner at Deloitte, said he had been concerned for some time about the issue.
Businesses collect GST on their sales and then send it to Inland Revenue when they file their GST returns.
But the amount of GST collected but not paid to the government rose from $1.9 billion in March 2023 to $2.6b in March 2024, and all signs are that the amount is still rising.
Bullot said IR had the power to notify credit reporting agencies about tax debt but only did that three times in the 2024 financial year and not at all in 2023.
That meant people were trading and doing business with companies without realising the potential liability, he said.
"There's the potential we've got zombie companies out there. My view on GST is it doesn't work just by getting numbers on a GST return."
He said while GST was 25 percent of tax revenue, it was just under 40 percent of all tax debt.
"It has shot up massively in the last two-and-a-bit years."
Some people, particularly small business owners, had started to use IR as a "bit like a bank" when it took a softer stance through the Covid years, he said.
"Given the very challenging trading conditions we've had, some people have kept that going - lodging GST returns showing amounts payable but just not paying it.
"That's grown and grown. I get very nervous we're creating zombie companies ... if you're three or four GST returns behind, it's incredibly unlikely if you're a retail or service business that you'll ever come back.
"Maybe if you're a property developer who's got behind and you've got big assets that you sell and settle your debt … but if you're a normal business, a restaurant or something like that you go belly up.
"You're going to end up with Inland Revenue as we see in lots of things, being one of the entities holding a big can that's empty."
He said sometimes businesses looked fine from the outside but Inland Revenue knew they were "months and months" behind in GST.
"If people that weren't paying their GST knew that [information] would get out very quickly we might have faster action. No one wants businesses to fail but it's better for everyone for them to fail faster than hang around as zombie companies for six moths to a year."
Keaton Pronk, from insolvency firm McDonald Vague, said IR was a creditor in most liquidations, and GST was a frequent factor, as well as other tax and Covid loans.
"IRD has a huge amount of tax debt on books need to recover. They don't really have a choice how they go about doing it - that's why we've seen a huge jump this year alone in IR pursuing liquidation applications.
"Usually they are responsible for 60 percent of applications that go through court but at the moment it's close to 70 percent. They're pushing hard at the moment through all tax types."
He said company directors sometimes took PAYE more seriously because they knew they could be held liable if that went unpaid.
Pronk agreed with Bullot that it would be beneficial if people could check whether a business was in tax trouble.
"It would be beneficial for business owners to understand, if they are giving credit to someone, if they have a lot of tax debt and evaluate whether they should be advancing credit.
"Otherwise the only time they know is when IR makes a winding-up application."
He said the pressure on companies with tax debt was likely to continue through the rest of this year at least because of the "sheer quantum" of debt that needed to be recovered.
Inland Revenue said its management of information about taxpayers legally required full confidentiality of sensitive revenue information.
A revenue officer must keep confidential all sensitive revenue information and must not disclose the information unless the disclosure is a permitted disclosure.
"Generally sharing information about companies that are behind with GST payments is not a permitted disclosure under the current law. Any company that is behind in its payment of GST [or any other taxes] does not necessarily mean that it is a 'zombie company' and that it is insolvent and will never recover. Inland Revenue is required to work with each company that is behind in tax payments to establish the true extent of any potential recovery. When doing so, Inland Revenue must also establish to what extent a company qualifies for any relief or write-off under the appropriate legislative provisions."
The spokesperson said it was not possible for it to publish or share information about a company's tax position before going through the legal recovery process and ultimately the liquidation of those companies that would never recover. "In this context it has been widely reported that there has been a significant increase in liquidation activity, the majority of which is generated by Inland Revenue's debt collection processes."
In its recent annual report, IR said it had increased efforts to collect GST and employer debt and finalise overdue returns.
"GST returns have been a priority, as they are generally of high value. Employer returns are another priority as they contain information that ensures millions of individual salary or wage earners' tax, KiwiSaver, student loan and child support contributions are calculated accurately.
"Finalising high-value returns resulted in $1.71 billion of additional revenue this year, although we did not achieve our target for finalising 60 percent of unfiled returns within six months. This is $331 million more than in 2022-23, although a proportion of this may end up as overdue tax debt."
It said it $4.07b in overdue debt in the 2024 year, compared to $2.95b in 2023.
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