The Impact on the Integrity of the Tax System of IR Sharing Information with Other Public Sector Organisations

The Impact on the Integrity of the Tax System of I…
01 Jun 2013
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This report presents the findings of Inland Revenue commissioned research to gather the views of owners of small and medium businesses on Inland Revenue sharing information about individual businesses with other government departments and the perceived 'risks' and 'unintended consequences' resulting from this.

Purpose

Previous research suggests that the general public generally holds positive views about information-sharing between government departments, including Inland Revenue. However, as others (e.g. privately-owned New Zealand businesses and business leaders) may see information-sharing as potentially compromising the integrity of the tax system (which might, in turn, impact compliance with the tax system), Inland Revenue commissioned this research to obtain a more complete picture of stakeholder opinion.

Against this background, the purpose of the research was to provide an understanding of the opinions and expectations of the owners of privately-owned New Zealand businesses with regard to Inland Revenue sharing information about individual businesses with other government departments.

The research set out to collect answers to three key questions:

  1.  To what extent are businesses in favour or not in favour of Inland Revenue sharing information about individual businesses with other government departments?  What do they perceive as the benefits of Inland Revenue sharing this information with government agencies?
  2.  With which particular government departments do businesses believe Inland Revenue should share information about individual businesses?  What specific type of information could Inland Revenue reasonably share with these government departments? In which particular situations and circumstances?
  3.      What do businesses perceive as the ‘risks’ and ‘unintended consequences’ resulting from Inland Revenue sharing this information with other government departments? How might these risks manifest themselves in practical terms and customer behaviour (e.g. non-compliant tax behaviour)?

Methodology

In order to collect the information outlined in the previous section, two discrete, but inter-related stages of research were completed:

Stage 1 - Qualitative interviews with key informants

Qualitative interviews were conducted with n=21 key informants representing four particular audiences (viz. the owners and directors of privately-owned businesses, business ‘leaders’, sector/professional business groups, and business ‘service providers’).

Completed between 5 February and 7 March 2013, by telephone and on a face-to-face basis, this qualitative interviewing was undertaken to complement the results of the survey (Stage 2) by providing more in-depth information. The qualitative interviewing also helped to inform the design of the questionnaire for the survey.

Stage 2 – Survey of owners and managers of privately-owned businesses

The interviewing for the survey was conducted with a nationally-representative sample of n=573 owners and managers of privately-owned businesses between 17 April and 10 May 2013, after a sample had been randomly selected from Inland Revenue’s administrative databases and this sample had been pre-notified about the survey. The survey effectively provides a baseline of current opinion.

Note that the survey was positioned to respondents as a survey aimed at gathering "the opinion of owners and managers of businesses about Inland Revenue sharing information about ‘individual businesses’ with other government departments". This explanation was considered necessary so that respondents did not presume that the information Inland Revenue proposed to share was aggregated business information.

In order to optimise the survey’s response rate, a mixed methodology, based on online and telephone interviewing methods, was used to complete the interviewing. While it is not technically possible to calculate a response rate for those who were approached to complete the interviewing online, the response rate for those completing the survey by telephone is 21 percent, which is typical for this type of survey.

The raw survey results have been weighted to account for the fact that a disproportionate number of medium to large businesses responded to the survey, compared with those that were small businesses and those operated by Self-employed persons2. The weighting effectively rebalanced the sample and ensured that the results presented in this report were representative of the survey population in question.

Results based on the total weighted sample are subject to a maximum margin of error of plus or minus 4.7 percent (at the 95 percent confidence level). Higher margins of error apply in the case of sub-samples of respondents.

Key Results

There are nine key findings based on the results of the survey.

1. New Zealand businesses’ trust and confidence in Inland Revenue provides context to understand the extent to which they are in favour or not in favour of the Department sharing information about individual businesses with other government departments. The results showed that:

  •  59 percent of respondents rated themselves a 7-10 on the 11-point response scale (moderate to high trust) (Figure 1, overleaf)
  •  8 percent rated themselves a 0-3 (low trust)
  •  33 percent of respondents sit between these two extremes.

2. Business owners’ awareness and knowledge of Inland Revenue’s current information sharing practices is also valuable context. The results show:

  •  14 percent believed Inland Revenue definitely currently shares information about individual businesses with other government departments (Figure 2, overleaf).
  •  31 percent believed Inland Revenue probably currently shares information about individual businesses with other government departments.
  •  19 percent believed Inland Revenue did not share information about businesses with other government departments.
  •  36 percent "did not know".

Regarding the type of government department Inland Revenue currently shares information with, the results show:

  •  65 percent believed sharing happens with Government departments responsible for benefits.
  •  16 percent believed sharing happens with Government departments responsible for regulating businesses.
  •  13 percent believed sharing happens with Government departments responsible for goods, services and people coming in and out of the country.
  •  12 percent believed sharing happens with Government departments responsible for criminal investigations.

3. Against this background, two of every three New Zealand businesses are in support of Inland Revenue sharing information about individual businesses with other government departments. Specifically:

  •  18 percent of all respondents stated they were ‘very’ in favour of Inland Revenue sharing information about individual businesses with other government departments (Figure 3).
  •  44 percent of all respondents stated they were ‘somewhat’ in favour of Inland Revenue sharing information about individual businesses with other government departments
  •  29 percent were not in favour.

4. Sharing information with government departments responsible for regulating businesses is less favoured than sharing information with other types of government departments. The results showed that

  •  89 percent were in favour of Inland Revenue sharing information about individual businesses with government departments responsible for benefits
  •  83 percent were in favour of sharing information with government departments responsible for criminal investigations.
  •  80 percent were in favour of sharing with government departments responsible for goods, services and people coming in and out of the country.

5. New Zealand businesses preferred sharing general business information rather than specific director-related information. The results were as follows:

  •  "Name and contact details of businesses" (86 percent)
  •  "Names and contact details of directors" (73 percent)
  •  "Business turnover" (56 percent)
  •  "Tax paid and owed by a business" (57 percent).
  •  "Tax and financial information relating to the directors of the business" (47 percent)
  •  "Tax and financial information of other companies those directors were involved in" (46 percent).
  •  "Tax and financial information relating to individuals that the directors of the business are related to" (33 percent).

6. Five hypothetical information-sharing scenarios were developed by Inland Revenue and presented to all respondents for consideration (Figure 4). The results showed people favoured information sharing regarding four scenarios in particular:

  •  "A new immigrant not reporting a large investment" (82 percent).
  •  "Staff being paid below the minimum wage" (82 percent).
  •  "Directors of a company making false statements" (82 percent).
  •  "A taxpayer not declaring income from the use of DOC land" (75 percent).
  •      One scenario was less favoured; "a company that is taking on debt it cannot pay" (63 percent).

7. Opinions regarding who should oversee or manage Inland Revenue’s information-sharing practices varied as follows:

  •  Inland Revenue should self-regulate (27 percent)
  •  Privacy Commissioner (29 percent)
  •  Minister for Inland Revenue (9 percent)
  •  Courts (6 percent).

8. Respondents believed there were more benefits (55 percent) than risks with information sharing (19 percent) (Figure 5, overleaf).

  • The large majority of respondents believed the benefits would be "assisting with criminal investigations" (83 percent) and "assisting with cases of benefit fraud" (83 percent) (Figure 6, overleaf).
  • Respondents considered the main risk to be that "privacy will be compromised due, in part, to the fact that government departments have a poor record of managing privacy" (42 percent) (Figure 7). To a lesser, but not insignificant extent, respondents also frequently stated that there was a risk that "too much information/knowledge would lead to an abuse of power" (17 percent) and a risk that there would be "unintended consequences resulting from the sharing of inaccurate information or the poor interpretation of information" (10 percent).

9. Support for Inland Revenue sharing information about individual businesses with private-sector companies is low (Figure 8, overleaf). Specifically:

  •  3 percent of all respondents were very in favour
  •  21 percent were somewhat in favour
  •  28 percent were not in favour
  •  45 percent were not at all in favour.
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