Tax dodgers cost country over $80 million in undeclared income

Photo / Thinkstock

Tax-dodging New Zealanders cheated the country out of at least $80 million in undeclared income last year - and Inland Revenue admits it will never know the full scale of the problem.

The Inland Revenue Department has revealed to the Herald that it received about 177 tip-offs a week from disgruntled Kiwis about earnings being concealed.

Major industries investigated included construction, property, accommodation, restaurants, retail and wholesale trade.

Of the cases the IRD has been told about, the difference between what tax was reported and what the IRD calculated should have been paid reached $82.6 million in the year to June 30.

That's enough to feed more than 375,000 families of four based on the average amount spent on food in Auckland. It could have funded more than 8000 breast cancer surgeries, 1650 open heart surgeries, the redevelopment of children's hospital Starship twice over, or rebuild the earthquake-ravaged Christchurch Cathedral.

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The department investigated 513 cases and found 414 had discrepancies. Forty-four resulted in prosecutions and the remainder resulted in outcomes including "shortfall penalties" - a total of $4.4 million was handed out - enforced repayment plans or warnings.

Last year saw a bigger discrepancy at $115.8 million from 656 cases investigated. A $117.7 million difference from 710 cases was reported in 2010.

The IRD did not have statistics on how much of the discrepancy had been recovered through the court system, creditors or its own staff, but said the full amount was never retrieved.

"Often people are in pretty dire straits when they start evading tax by not paying PAYE and GST, they're often up against the wall financially already," said the IRD's group tax counsel, Graham Tubb.

"So you can understand that we might have difficulty recovering the money." He said there were cases of tax evasion that the department may never find out about.

"Persons in the community who are choosing not to pay their tax deliberately are creating a degree of burden on the rest of the taxpayers. There's no question about that.

"What we don't know is how many people aren't paying their fair share and how much that is ... we're never going to be able to provide a satisfactory answer to that."

The maximum sentence for evasion under the Tax Act is five years' imprisonment and/or a $50,000 fine, but the IRD can also prosecute under the Crimes Act, which can result in a seven-year prison sentence.

The cases covered a range of people, including tradesmen doing cash-in-hand jobs and people with funds overseas not declaring their bank deposit income.

The department had received 4608 tips from the public of alleged tax evasion to June 30.

Revenue Minister Peter Dunne told the Herald Budget 2012 allocated the IRD with an extra $78.4 million for the next four years to deal with the hidden economy, debt collection, and unfiled returns.

Tax evaders

$82.6 m evaded, 513 cases investigated in 2012

$115.3 m evaded, 656 cases investigated in 2011

$117.7 m evaded, 710 cases probed in 20104608tip-offs to IRD

$50,000 fine/5 years' imprisonment under Tax Act

7 years' imprisonment under Crimes Act