Sinners are warned—‘Big Brother,’the taxman, has his beady eye on you

Press, 17 April 1979, Page 17

Sinners are warned—‘Big Brother,’the taxman, has his beady eye on you

By

MIKE HANNAH

Over the next few months many otherwise calm and healthy people will be found searching feverishly througn their finances for the past 12 months looking for something, be it ever so small, that they an save from the clutches of the tax collector.

There are many who treat the tax return as an annual game of chance, poring over green forms, strange words, and mysterious formulae. Almost invariably the taxman wins, although select groups like students and the poor have been know to beat the apparently loaded dice. Others turn to tax evasion. But those who do so in desperation, in a final fling at authority before they sink into a financial bog, are few and far between.

According to Mr John

Simcock, the Christchurch regional controller of the Inland Revenue Department, desperation does not come into it. “There’s a tendency in some people to have a go. I don’t know whether it’s a gamble, but they think they tan beat the taxman. The taxman has always been regarded as fair game.”

But can they beat the taxman?

In the 1977 financial year, 62 persons were prosecuted for wilfully or negligently furnishing false returns. All but one were convicted. Another 378 were charged with penal tax by the department for attempting to evade payment of income tax, and 109 were penalised for failing to account for tax deductions. In all, $207,110 was imposed in penal tax.

Discovering a case of tax evasion is not, as

many taxpayers would suppose, second nature to the tax collector. Evasions have a habit of standing out from the return and pointing at the perpetrator.

There may be discrepancies between the return furnished by a private person and the employer’s return. The department picks up a lot of information simply by comparing both ends of the wage system. “People don’t live in a vacuum,” Mr Simcock warns. Other people are affected by their actions. The department keeps a close watch on court proceedings and local knowledge also plays a part. “We don’t look for these things. It’s an intelligent appraisal of the facts as they lie.”

Some evasions are more obvious than others. Those who sign their returns

with names like “Mickey Mouse,” or “Frankenstein,” or in their children’s names cannot expect to go unnoticed for long. Taxpayers who put off one year’s return only to stare bleakly at two returns the next year are simply putting "off the dreaded hour—-and running tlie risk of being charged with penal tax.“ The department can make an assessment of what the income tax should be and ask that the sum be paid. If the taxpayer disputes the amount he must fill in his own return.

It is people in the cash business — small businesses, hotels and motels, restaurants — who provide most attempted evasions, for failing .to account for additional income, or, in an individual’s case, failing to account • for secondary employment. One evasion that is rife, according to a Christchurch lawyer, and that is not readily traceable, is a cash settlement that is not enetered in the company’s books. A boutique, for instance, sells a suit, cash is exchanged, and no record exists of the transaction. A variation on the same trick, according to another lawyer, is to hold two receipt books: one for the department and the other for syphoning off cash for private use. The customer is none the wiser as he gets a receipt, but the department has a difficult job discovering the use of a second book.

Often the sudden acquisition of, say, a jet-boat, a block of flats, or a holiday home in Akaroa, arouses the suspicion of the department, especially when the return shows no appreciable increase in income to account for the acquisition. In these cases the taxpayer is faced with an ment in court. The depart“asset accretion” statement finds out when the possessions were acquired, matches them against the income returned for each year, and makes an allowance for living expenses. The deficit is .according to the department, the undeclared income. The argument in court, however, tends to surround the estimate made for living expenses.

Other taxpayers prosecuted for evasions often make the claim: “I won it on the horses.” The only way around this argument, according to the lawyer, would be to hold a stand-

ing account at the T.A.B. Mr Simcock says the department also picks up cases of “forgetfulness.” A person has forgotten that he worked for so-and-so at the start of the year, or thought it was on last year’s return. In many cases the amnesia is genuine, but the department will penalise or prosecute the person if it feels the error was wilful. Should an employer “forget” to pay in P.A.Y.E. tax. deducted from an employee’s wages, this is picked up by the department’s computer as the department must be

notified of these deductions each month. The department cannot pursue every case as it occurs, however, as its resources are thinly spread, acording to Mr Simcock. Its 1978 report, tabled in Parliament, bemoaned the 'lack of experienced investigators, although each inspector produced $8 each $1 spent.

The shortage was blamed for the fall of SI.4M in additional tax from district offices. Inspectors’ salaries and wage structures were reviewed in an attempt to stem the high rate of resignations.” Anyone thinking that their evasion is too small to be noticed, or to be worth investigation or court action, should consider the case of a carpenter who owed $ll in 1977. He was charged $2O penal tax. At the other end of the scale the biggest amount owed was $90,908 by a restaurateur,' who was charged $19,000 by the department in penal tax.

The average charge amounted to just over $3OO, although the lowest penalty was $lO, for $5l outstanding. The penalties could be more severe, but no-one appears to have had the maximum penalty imposed. Mr Simcock warns, however, that this does not mean they will not find someone eventually who will have the book thrown at him: a $2OOO court fine plus penalty tax worth three times .he deficient tax.

The view of one lawyer who has dealt with tax evasion cases, is that maximum penalties cannot be imposed, in case a worse offence is still to

appear. In his experience magistrates have been meticulous in imposing appropriate sentences. Tax evasion is not the privilege of one section of the community: professional people, including a solicitor, businessmen, tradesmen, clerks, factory workers, even evangelists (did they forget to render unto Caesar what was Caesar’s?) all tried their hands, and got them burned, in 1977 and 1978. The tax collector’s arm is, for those trying to avoid paying income lax, uncomfortably long. The department keeps its

records with the eagerness of a squirrel approaching a long, cold winter.

“We don’t like to throw them away readily,” Mr Simcock says. “We rnay come across an indication in one year’s return that all is not well. If the indication is confirmed we can go back without limit. Generally, though, we go back 10 years at the most. “In the short term you can beat the taxman, but in the long term you can’t.” The figures prove his point. In 1977-1978, some cases covered as many as 10 years, in one case going as far back as 1964. Evidently someone thought he had struck a winning scheme, and was tempted to try it again, and again, and ... he was caught. In this case a farmer-clerk owed $5477 Over 10 years and penalty tax of $2535 was imposed. The purpose of income tax, in spite of the misgivings of some taxpayers that it exists as a deterrent to work, is to fund the services provided by the Government. Mr Simcock says that a co intry with a lower tax rate may also have a lower level of services. New Zeaiand, he says, has a high level of services.

He is suspicious of calls for tax restructuring' what is good for one man can be bad for another. The overriding attitude of such calls seems to be: you can do what you like to the other fellow, but leave me alone.

Mr Simcock could give no idea of how many evasions are caught and how many go undetected, but “the system is geared to catch everyone . . eventually.”