The Inland Revenue Department has made it clear it will show no mercy to restaurateurs who fail to meet their tax obligations.

However, the taxman has undertaken to work with the sector, offering workshops to educate various ethnic groups about tax requirements.

IRD officials met industry representatives in Auckland this week at the behest of the Restaurant Association, following a recent department crackdown on Chinese food outlets.

Investigators visited around a dozen Chinese restaurants in the run-up to Christmas and at least another two after New Year. The taxman was targeting eateries reporting profits lower than the industry average.

The department has said the sweep is part of a wider, well-publicised focus on the cash economy.

Tony Cho, president of the Auckland Chinese Food and Beverage Business Association, said the meeting was polite but the officials made it clear there would be no leeway for those not paying their tax.

However, IRD did not want to see restaurants close down and was prepared to come to arrangements over the payment of overdue tax and penalties.

The officials also commented that some restaurant owners needed to find appropriate tax agents, he said.

Cho said tax workshops were a good idea, as many Chinese restaurant operators were recent migrants and did not have a good understanding of tax requirements.

"Some assume that they pay tax only when they make money and they don't understand that PAYE and GST are something you must pay to IRD."

Some also thought it was okay to provide free staff meals, not realising there were tax implications.

Paying wages under the table is reportedly widespread within the Chinese restaurant industry.

A former employee of one restaurant in Wellington told the Herald on Sunday that at least four staff were claiming a benefit at the same time as working for cash.

CEO of the Restaurant Association Steve Mackenzie, who organised the meeting, said it was not just ethnic food outlets that had been investigated by IRD over the past year.

"It's tough trading and a lot of small businesses think by not paying their proper taxes it's going to help them in their business. But it's a bit of a deathwards spiral."

While some were trying to avoid their obligations, there was also a level of ignorance about the requirements.

"There may be a need to develop some specific communications in languages other than English," he said.

The two-hour meeting on Thursday did not go into details, but it was agreed to work on better communication and to get together with other government agencies such as ACC and the Ministry of Social Development.