Damien Grant: Soft sentences foster tax fraud

Opinion

Last month a Tauranga man by the name of James Allen Kent was sentenced to 12 months' home detention with his sick wife after stealing half a million dollars.

Your eyebrows probably raised at this but when I tell you the victim was the Inland Revenue, your outrage may subside. But it shouldn't.

There is a view among some in the legal and accounting communities that there is no morality in tax law. Avoiding tax is considered an acceptable use of some of the best accounting and legal minds in the land and this permissive attitude appears to extend to the judiciary's view of those who break tax laws.

Kent was a contractor, employing staff and sub-contractors on a Tauranga bridge development. Rather than deduct PAYE payments, or even file returns, Kent simply paid his staff cash and hoped for the best. He took the same cavalier approach to his GST obligations.

Under the law, Kent was liable for up to five years' jail for each offence. He received 37 convictions.

The excuse for sending him home was the state of his wife's health, although when Mrs Kent needs hospital attention this will be paid for by honest taxpayers. But this is not what I consider an isolated case of leniency.

In May, West Auckland builder Phillip Pedlar escaped with 400 hours of community service and 10 months' home detention for defrauding the crown of $235,000 of GST.

I believe in lower taxes and smaller government but once Parliament sets the rules they need to be followed, even if we do not like them.

Tax fraudsters gain a competitive advantage, hurting honest firms and creating pressure on other taxpayers to follow suit, further undermining the tax base.

New Zealand's tax system works on the basis of voluntary compliance and the risk of getting caught is low. If the judiciary takes the view that tax fraud should be treated leniently, then rational individuals could be inspired to take their chances.

The extent of this fraud is unknown but there is reason to believe it is substantial.

When the IRD focused its attention on the horticulture industry last year, tax revenue jumped from $88 million to $150m.

If there is going to be any deterrence it would help if judges and the sentences they imposed sent a clear message that if you are unlucky enough to get caught, the consequences are to be feared.

Unfortunately, the message today is this: if you cheat on your taxes you are unlikely to be prosecuted, and if you are, invest in a DVD player.