The IRD is in the slow process of transferring its software from one platform to another – the end goal is the automation of large parts of their business and (by inference) our business.
The vision is the full implementation of a system where the your business software talks directly to the IRD’s software and no human intermediary is required on either side. That means all compliance work will be done by intelligent software. That’s a more attractive way of saying “artificial intelligence”. This vision is being pursued by the IRD on one side and Xero on the other.
Accountants and clients sit somewhere in this mix and wonder how and when this will all take place.. and how it will affect us.
At the risk of being somewhat controversial, here’s the Beany take on all of this:
- Good. It’s about time technology made the life of small business owners easier. This meets the primary objective of Beany to help make NZ business more prosperous.
- Bad. Has the IRD, or Xero, considered the reality for small business owners? Have they considered the effect on NZ’s tax base?
The recent migration of GST to the new platform seemed to highlight some of these issues. The change took everyone by surprise and the IRD, accountants and Xero were all scrambling to understand the changes and the challenges (quite literally, how could you file a GST return when the website links are broken?). Xero had lost its link to the IRD, the IRD lost its link to the accountants and chaos reigned for a brief while.
But let’s assume that these are simply teething issues.
It feels that change is inevitable, and desirable, so how is change managed to create cost savings, efficiencies and calm in the vital tax and accounting sectors? Because if this is done badly, the consequences could be catastrophic for NZ.
Tax armageddon! This could happen if the IRD and NZ government fail to utilise local industry knowledge to manage changes. By over-estimating the capability of taxpayers with regard to their tax obligations, who knows what could happen? Here are two possible scenarios:
What happens if business owners over declare their profit and pay too much tax?
I believe this is the most likely scenario. Most business owners are busy with their business and have quite a hazy picture of all the claims they can make. So they err on the side of caution and just claim the basics.
This means they will be paying more tax than they should be. The IRD is a formidable government department (rightly so) so every taxpayer will be at a disadvantage in terms of resource and knowledge. The IRD has the huge advantage that it can afford to have excellent artificial intelligence running to ensure that the returns look correct. And in any case, the IRD are probably happy as long as the tax payable is within certain parameters. All the expertise for the transaction sits at the IRD.
That would definitely matter to the individual taxpayer. Would it matter to NZ Inc? Yes, it would remove cash from the productive sector and place it into the non-productive sector. This would have a depressing effect on the economy.
What happens if business owners under declare their profit and pay too little tax?
There will always be a proportion of taxpayers who are likely to push the envelope of what’s allowable. We routinely have clients that would be claiming all sorts of non business expenses, and then we advise them that it’s against the law. This at least gives them pause to think.
With no intermediary, we suspect that this group of clients would be pushing the envelope more and more, driving down the tax take.
Good software at the IRD side will probably pick most of this up – but how will this change behaviour – will this wily bunch of taxpayers be playing hide and seek with the programming? Will the programming of a large government agency be able to keep up with the agile play of the small private sector operator?
I suspect not.
The world of accounting and tax is changing and so it should. But what will be the unintended consequences be and where will this take NZ? What are your views?