The faith in the integrity of the Inland Revenue Department may be shaken following the sentencing last week of a former department employee for, among other things, tax evasion.
Polson Higgs tax partner Michael Turner said the case of a North Island couple, one of whom worked as an investigator for the IRD, showed it was possible there were "bad eggs" within the department.
"We have to presume that if this is a one-off, then it is an unfortunate occurrence. But if it is part of a recurring theme, then we have problems.
"The public needs to retain confidence in IRD staff ...Integrity is very important if the IRD is to be able to do its job."
The case involved MrNavacakalou, a silviculturist who started work under a company structure which employed gangs of men who worked in the forests around Taupo. While he worked in the field, his wife, the other taxpayer, studied accountancy and law and looked after the children. She also attended to the day-to-day administration of the business and compliance work required for such things as GST, Paye and personal tax.
Mrs Navacakalou then took up employment as an investigator with Inland Revenue. The court noted that IRD employees were required to operate under a code of accepted practice that they should have no involvement with businesses, particularly in the circumstances of the one run by her husband.
Evidence at the trial established that Mrs Navacakalou did, after she was employed by IRD, continue to involve herself in the company administration.
"The administration of the business was shambolic. There became a revolving pattern of not accounting for Paye, not properly accounting for GST received by the company which, in turn, led to the filing of false returns and to the complete ignoring of tax obligations," court documents said.
There was found to be a pattern which showed a deliberate and sustained evasion of taxation responsibilities and that there was a benefit to be gained by both taxpayers.
At trial, the Crown submitted a schedule of the total core tax evaded by Mr Navacakalou of about $238,750. About $544,000, which included penalties and interest, was written off by IRD.
Mrs Navacakalou was charged with core tax evasion of more than $71,000.
The taxpayers either pleaded guilty or were found guilty at a trial of the charges.
On Friday, Mr Navacakalou was sentenced to three years imprisonment reduced by six months for each of the charges for previous good behaviour and a further six months for the plea of guilty on 38 of the charges.
But on the remaining charges, the term of imprisonment was for two and a-half years. Mrs Navacakalou was sentenced to nine months' home detention.
Mr Turner said New Zealand's tax system was based on voluntary compliance and most people complied.
"I don't think anyone condones tax evasion." In contrast, tax systems around the world that were based on backhanders and unpaid tax were shown to be close to collapse.
The IRD was obliged to prosecute people it found to be in breach of the law.
As to any other IRD employees breaking the law, Mr Turner said all taxpayers were entitled to secrecy and the chance to deal with the IRD to resolve the issue in dispute.
Very few cases went to court.
In a written response to questions from the Otago Daily Times, an Inland Revenue spokesman said the IRD placed the highest emphasis on the integrity of its staff. Expectations of behaviour were clearly set out in the code of conduct, which was signed when an employee began work with the organisation.
"We have systems in place to detect and prevent inappropriate behaviour and regrettably we have needed to take action against a very small number of individuals for breaching the code of conduct.
"Where criminal offending is involved, we refer cases to the appropriate authorities."
All individuals, irrespective of where they worked, had an obligation to comply with New Zealand's tax rules, and the majority complied voluntarily.
Inland Revenue provided education, information and tools to ensure compliance and it would take enforcement action if required.
"As a result of this work, we uphold the integrity of the tax system," the spokesman said.
The department did not comment directly on cases before the court.
