Forbidden fruit: The $31m kiwifruit tax fraud

A passing comment by a Tauranga judge this week merely hinted at the huge scam that had dogged the agriculture industry in recent years.
During sentencing of Pyes Pa man Bakhtiar Ahmad on a number of tax evasion charges on Monday, Judge Peter Rollo said there were "numerous cases of a similar nature". It was the only real reference he made to the bigger problem that has been prevalent in the horticulture industry and especially prevalent in the Bay of Plenty region - where the kiwifruit industry has been particularly targeted and of which Ahmad was a part.
Judge Rollo is obviously well aware of the multimillion-dollar problem involving bogus companies, false identities and false invoices that has fleeced the tax payers of New Zealand of tens of millions of dollars. Many of the cases have come through the Tauranga court.
In the latest case to reach a conclusion, Ahmad was sentenced to two years, 10 months in jail for $5.1 million worth of tax evasion fraud.
Inland Revenue manager assurance, investigations, Richard Philp, said in the past five years, 33 people including Ahmad had been convicted of fraud in the agricultural industry. The total amount involved was more than $31 million.
Ahmad's scheme involved forming a new company and, for a fee, supplying invoices in that company's name for work completed by someone else.
He was involved in both writing the false invoices and recruiting young men from India, Pakistan and Bangladesh to incorporate the new companies.
In most cases they left New Zealand before Inland Revenue was able to complete any investigation into their affairs.
Inland Revenue estimates $5,185,441 in GST, PAYE and income tax was evaded by the 14 companies Ahmad was involved in.
Other similar cases in recent years that the IRD has brought to court included Tauranga man Sandeep Sood, who was sentenced in June 2006 to three years and three months in prison for his part in what was at the time the biggest tax fraud in the agricultural industry to be prosecuted.
Sood, a kiwifruit contractor who operated in Tauranga and Hawke's Bay, pleaded guilty to evading tax of more than $1.5 million.
In August 2007 orchard worker Bhupinder Singh was sentenced in the Tauranga District Court to a further eight months in prison after pleading guilty to fraud and tax evasion charges totalling $80,470.
He was previously sentenced in May 2007 to a jail term of 28 months for similar tax evasion offences totalling $115,000.
In July last year horticultural student Gurpreet Singh was jailed for 2 1/2 years by the Tauranga District Court after pleading guilty to 97 charges of tax evasion worth nearly $700,000.

The IRD explains that the scheme typically involves visitors to New Zealand forming horticultural companies and registering them for tax. Invoices would then be issued in the companies' names for work completed by actual contractors.
Payment is returned to the contractor who completed the work and the company is paid a fee for providing this service.
The company never files a return or pays any tax and when Inland Revenue makes inquiries, the company ceases trading and the non-resident returns to their country of origin.
There was also the case which saw an associate of Ahmad's, Western Bay orchard worker Muhammad Hussain, jailed for two years and nine months last February for his part in the biggest horticultural industry tax fraud scam ever prosecuted. Hussain was formerly employed by Mohammed Wasim, the man described as the kingpin behind a $15 million tax fraud scheme involving horticultural contractors.
Wasim, 39, who was already behind bars for bigamy, was jailed for five years and nine months in November 2007 after admitting 81 counts of tax evasion totalling $15,080,861 in tax.
It has been reported that after his sentence, he will be deported to Pakistan.
These cases highlight how the IRD has certainly had its work cut out for it in recent years with the elaborate and far-reaching tax evasion schemes. So much so that its compliance focus 2009-10 for small and medium enterprises specifically mentions agricultural and horticultural contractors' tax evasion schemes.
They said they have worked extensively with industry representatives to make sure operators understand their compliance responsibilities. Their investigations are ongoing.
"We will be continuing to monitor the industry very closely and will be taking firm action against these sorts of scams.
"We're committed to helping ensure an even playing field for the many honest contractors in the industry who are disadvantaged by tax cheats," Mr Philp said.
"Our message to anyone trying to commit this type of fraud is that we will catch up with them, and that they can expect both the courts and Inland Revenue to treat their actions very seriously."
Reports show that most of those involved are from India or nearby countries and of particular concern is that many seem to have come to the country specifically to take part in the scam.
Mr Philp said individuals involved in the schemes have come from a "variety of backgrounds".
He said the companies are set up under the law.
"However, this does not subsequently prevent them being used by some individuals for purposes that are unlawful," Mr Philp said.
He explained that the New Zealand tax system relies on self-assessment and voluntary compliance. "The vast majority of people do the right thing."
However, they have had a problem with tax fraud in the agricultural industry for several years.
This industry has some specific labour and tax issues that can make tax compliance more difficult. It is a seasonal industry with a transient workforce, moving around New Zealand and in and out of the country.
"This is an area we constantly monitor. People would be unwise to think we will not detect any inappropriate behaviour.
"We also have a very strong relationship with the industry and its members who are fully compliant, who inform us about people who they believe are not.
"We've been working very closely for many years with industry associations and growers to address their concerns and ensure there is a level playing field.
"We have also been involved in cross-agency discussions, such as with the Department of Labour.
"There have also been some legislative changes to allow growers to deduct withholding tax from payments to contracting companies, and the industry itself is introducing a New Zealand Master Contractors accreditation for contractors with good records with industry and regulatory bodies."
New Zealand Master Contractors was set up to eliminate the crooked contractors from the agricultural-contracting industry and give farmers confidence by providing a reliable and professional labour resource for employers in the kiwifruit, apple, grape, avocado, pip fruit, squash, cherry and summer fruit industries.
Master Contractors board member Andrew Forward said he had a meeting about five weeks ago with the IRD fraud investigator from Nelson, and they will be putting in place in the Marlborough region a task force before the end of the year to audit both contractors and grape growers who seem to be avoiding paying their fair share of tax.
"I applauded the move and said this was well overdue in the region, as compliance was the number concern for Master Contractors and legitimate contractors."

The feeling in the industry is that they need to tackle the problem or legitimate contractors are going to get fed up and leave.
Peter Silcock, Horticulture New Zealand's (HortNZ) chief executive said they were 100 per cent supportive of Inland Revenue's efforts to remove this type of tax fraud.
HortNZ is an advocacy group representing the country's 7000 commercial fruit, vegetable, berryfruit and olive growers.
"It is particularly damaging for the image of New Zealand horticulture to be tarnished in this way, when our growers put a considerable amount of time and effort into growing very high quality product, and sell it in more than 100 countries around the world," Mr Silcock said.
"This type of fraud is a purely criminal activity that takes advantage of people who are already vulnerable and desperate to find a new life for themselves and their families."
Mr Silcock said it supports the development of New Zealand Master Contractors and encourages all growers to only use MCI registered contractors.
"Growers also need to question their suppliers about their staff and make sure the people working on their properties have the correct, legal, paperwork."