The Hidden Cash Economy
In the 2010 Budget, the Government announced it will be providing additional funding of $119 million to the Inland Revenue Department (IRD) to expand its taxpayer audit activity with one-third being targeted to investigate the ‘hidden cash economy’.
What is the ‘hidden cash economy’? Basically, it is not returning sales as taxable income either by pocketing cash for goods and services sold (colloquially called ‘cashies’) or by swapping goods and services with other businesses without returning their value as income. Both amount to tax evasion in the eyes of the IRD. In biblical times tax collectors were treated with contempt and two thousand years later some attitudes to the nation’s tax collectors haven’t changed, indeed, some see taking cash as a God-given right in ‘God’s own’
How is the Government through the Inland Revenue Department going to tackle this multi-million dollar problem? We believe they will use the tactics of their trans-Tasman counterpart, the Australian Tax Office who have accumulated Australia’s biggest business benchmarking performance database, providing valuable information to measure whether businesses’ profit margins are appropriate for their industry.
Take a painting contracting business for example. From the firm’s paint supplier invoices the IRD can add up the quantity of paint purchased in a given tax year.
Their statistics will tell them the average number of litres that can be applied in an hour and the average hourly charge out rate. They can then estimate what the firm’s sales should be and compare this with the amount returned for tax purposes. If the firm is doing ‘cashies’, or undisclosed contra deals with other businesses, the sales figure returned will be deficient and runs the risk of being reassessed for back tax over several years with interest, late payment charges and shortfall penalties adding to the debt.
The Government through IRD is very serious about plugging up the holes in the country’s tax base and any taxpayer participating in the ‘hidden cash economy’ can expect serious consequences if caught with their hand in the till!!