Cash jobs crackdown by IRD

21:08, Apr 04 2012

Sixteen cash-dominated industries including restaurants and electricians are being targeted by Inland Revenue as part of its crackdown on the underground "cash" economy.

The tax department has released "benchmarks" or expected financial ratios for a range of industries, including cafes, painters or decorators, electricians, and taverns and bars.

Benchmarks for up to 34 more industries are expected later this year.

Tax advisers described the targeted sectors as ones dealing with a lot of cash and having "more scope" to under-report their income.

IRD assurance manager Tony Morris said the benchmarks were part of a 10-year plan to target the "hidden economy".

Cash trade jobs, crimes and wages under the table are thought to cost the Government more than $7 billion a year in lost tax.Although the IRD will not put a figure on the hidden economy, it is aiming to collect an extra $600 million tax over the 10-year period, and last year netted an extra $120m for its efforts.

Advertisement

Morris said the benchmarks would highlight what sort of gross profits businesses in various industries were expected to earn.

Being outside a benchmark did not mean a business was dodging its tax obligations but could reflect other reasons such as insufficient product markup or difficult trading circumstances.

He hoped business owners would see the benchmarks as a tool.

"A lot of people in these industries, they think they know what everyone else is doing in the industry and they think they have to do the same as them to remain competitive. The benchmarks are one way for us to give some transparency so they can see where they fit in the industry."

The Institute of Chartered Accountants said IRD had been using the benchmarks internally for some time so it was good to see them made public.

"The poor old PAYE earner has no choice to pay the correct amount of tax so it's pleasing to see they're following up on those industries that have a bit of flexibility in terms of what they can return," said Craig Macalister, the institute's tax director.

Wellington-based tax adviser Jeff Owens also welcomed the benchmarks, given the considerable risks involved of flying under the IRD's radar.

"If someone has a tax shortfall and it is subject to late payment penalties and interest, the effective compounding rate is somewhere between 25 and 30 per cent per annum ... That's before you have any penalties for tax avoidance or evasion. And then you end up with an amount that someone can't pay."

Tax Agents Institute spokesman Terry Baucher also hoped the benchmarks would be seen in a positive light.

"The IRD have enormous resources and often people don't realise just how big their resources are until it's too late. I think people should look at this as a good business tool and not just a `we're watching you, so beware'."

The Dominion Post