Inland Revenue (IR) has issued a warning to the horticulture sector over a number of tax practices it says are widespread in the industry and posing a "significant risk" to the integrity of the tax system.
The department said it was concerned about workers being paid in cash, complex contracting arrangements being used to obscure transactions and businesses failing to meet their tax obligations.
In the year to June 30, Inland Revenue had opened around 130 investigations into businesses in the horticulture sector — which involved the growing of fruit crops and vegetables for export and domestic consumption — and identified $7.2 million in discrepancies.
Forty-five of those cases remained open, while three people involved in the sector were sentenced to home detention for tax evasion during the year.
The large number of cases had prompted the Commissioner of Inland Revenue to issue a Revenue Alert, which was typically reserved for significant or emerging tax issues and was rarely used.
"Because of the concern, IR is increasing its focus on growers, contractors and subcontractors and will investigate anything suspicious," Inland Revenue said.
The department said it was aware of arrangements in which false invoices were being created to hide the true nature of transactions, resulting in GST, PAYE and income tax being under-reported.
"Where these sorts of arrangements are being used to evade tax, Inland Revenue will look to make or amend assessments. Prosecution is also an option," it said.
Inland Revenue was also increasing its scrutiny of new GST registration applications from businesses in the sector, including companies suspected of being established solely to issue false invoices.
Failures to comply with schedular payment rules were also being examined, as well as the use of certificates of exemption and tailored tax rates by taxpayers in the horticulture sector.
"Increasing action" would be taken to step up efforts to recover outstanding debt in the sector, with IRD using its available enforcement powers where necessary.
The department was also concerned about broader non-compliance involving GST, PAYE and income tax obligations linked to the supply of horticultural labour.
It warned if evidence of other offending was uncovered, information could be shared with police, the Labour Inspectorate and the Ministry of Business, Innovation and Employment.
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