A Wellington brothel owner has been sentenced to 11 months home detention after pleading guilty to two charges of tax evasion - failing to pay $663,513.
Zhi Rong Zhou, the owner of Wellington’s Pillow Talk brothel, pleaded guilty to the charges in August 2022 and was sentenced at the Wellington District Court this morning.
The 40-year-old owned a number of businesses and properties after moving to New Zealand in 2000, including Pillow Talk.
In 2020, his tax affairs started to be investigated by Inland Revenue (IR).
Two of his properties were searched, with text messages dating back to 2015 being analysed.
It was found that two of the properties were being rented out but had no rental income declared for tax purposes.
While running his brothel, Zhou was in charge of hiring workers, advertising and bookings. He also took one-third of the worker’s earnings, the investigation found.
Up until 2019, Pillow Talk was a cash-only business, as there were no credit or EFTPOS facilities on the premises.
Following Inland Revenue’s investigation, it was found Zhou didn't account for all of his business activity to evade assessment and paying $663,513.83.
This was made up of $183,682.04 in income tax, $452,834.01 in GST, and $26,997.78 in Working for Families Tax Credits.
During the investigation, there was some dispute over the average daily gross his businesses earned.
Inland Revenue assumed the cash being deposited into Zhou’s bank accounts represented one-third of the payments made by Pillow Talk clients.
They also used text messages, worker rosters and handwritten records of customers to find out what the brothel’s daily gross was.
Justice Touhy said the man was liable to return GST on the basis that Pillow Talk was a business providing sexual services.
As of now, Zhou has already repaid $300,000 and has been ordered to pay $150,000 in reparations and do community work.
“Those who intentionally avoid paying tax or claim money they are not entitled to, are robbing honest people of services they might have had,” and IR spokesperson said.
“That is why we help people do the right thing and act when people deliberately try to avoid paying tax.”
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