$800m loss from underreporting

AUCKLAND: New Zealand is missing out on about $800 million in its annual tax take as a result of the country’s selfemployed underreporting their income by about 20%, the IRD says.

Research by Victoria University and the Government’s tax authority estimates New Zealand’s selfemployed, which account for 12% of the workforce, on average underreport their income by a fifth.

The paper, by the IRD’s Ana Cabral and Victoria University’s Norman Gemmell, focused on the selfemployed because of the lack of thirdparty reporting and limiting withholding of their income, giving them a greater chance to dodge tax than people paying income tax through PAYE.

The paper draws on household income and expenditure data between 2006 and 2012 and shows the income gap varies by gender and region, women underreporting less on average and urban residents underreporting more.

Statistics New Zealand figures show that there were 306,100 selfemployed people in the country as at December 31, up from 260,600 a year earlier.

In the December halfyear economic and fiscal outlook, Treasury estimated individuals would pay income tax totalling $35.48 billion in the year to June 30, accounting for about 46% of the total tax take.

IRD marketing and communications manager Andrew Stott said the tax department estimated it was missing out on about $800 million a year as a result, although the research could not distinguish how much of that was from simple errors and how much was intentional.

‘‘This research suggests an average figure could mean a small number underreporting deliberately and a larger number simply not getting things right in their returns,’’ he said.

The IRD has been targeting cash jobs in recent years with some success. Last year, just a quarter of people surveyed did cash jobs, down from 34% in 2011, and 62% of people said they were unlikely to ask for a cash job, compared with 49% in 2011. — BusinessDesk