Self-employed owe millions

New Zealand is missing out on about $800 million in its annual tax take due to the country’s self-employed under-reporting their income by about 20 per cent, according to the Inland Revenue Department.

Research by Victoria University and the Government’s tax authority estimates New Zealand’s self-employed, who account for 12 per cent of the workforce, on average underreport their income by a fifth.

The paper, by IRD’s Ana Cabral and the university’s Norman Gemmell, focused on the self-employed due to the lack of thirdparty reporting and limiting withholding of their income, giving them greater opportunity to dodge tax.

Stats NZ figures show there were 306,100 self-employed in the country as at December

31, up from 260,600 a year earlier.

In the December half-year economic and fiscal outlook, the Treasury estimated individuals will pay income tax totalling $35.48 billion in the year ending June 30, accounting for about 46 per cent of the total tax take.

IRD marketing and communications manager Andrew Stott says the tax department estimates it’s missing out on about $800m a year as a result, although the research couldn’t break out how much of that was from 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,” Mr Stott said.

IRD has been targeting cash jobs in recent years with some success. Last year, just a quarter of people surveyed participated in cash jobs, down from 34 per cent in 2011, and

62 per cent of people saying they were unlikely to ask for a cash job, compared to 49 per cent in 2011. Stott said that campaign will be expanded to hospitality next month.