Inland Revenue has released insights from its first round of a hidden economy campaign, focused on smaller liquor outlets around the country.
The number of off-licence liquor stores has grown rapidly since 2020 and now sits at about three thousand.
In 2020 the data for these businesses showed:
- Total sales =$1.95b;
- Taxable profits = $34.7m;
- Income tax paid = $11.4m;
- $29.4m GST collected.
The first stage
In the first stage of this campaign, compliance staff made 220 unannounced visits nationwide, looking for signs of issues such as income suppression, unreported sales, and non-registered staff.
Most of the businesses visited had their tax affairs in order. Unfortunately, we also found businesses that didn’t.
Insights and Findings
Inland Revenue wants to learn more about the sector and to improve voluntary compliance. We want to make sure liquor store owners are meeting their employee tax obligations.
During the visits we found more than 100 employees who had PAYE deducted from their wages but none of that had come to IR.
We’ve started investigations because of our visits and 9 outlets have been referred for audit. We’re disappointed that these business owners appeared to be undermining other good businesses by not paying their fair share.
Insights gained from the visits show there are migrant exploitation issues with under the table wages paid and the use of migrant/familial labour who were not registered as workers. There was evidence of poor employee relations in some cases.
There are also high levels of unreported cash sales and poor record-keeping.
Other findings from the campaign included:
- Companies with multiple family members and changes of ownership demonstrated less clear money trails.
- Some directors appeared to be in name-only, with minimal knowledge of the business or their director responsibilities.
More to come
This was a deliberate light touch campaign and only the beginning of a wider look into smaller liquor stores nationwide and how they operate.
More unannounced visits to businesses whose tax affairs may be out of order will be made as IR steps up its compliance work.
To ensure there is a level playing field for all smaller liquor outlets, Inland Revenue will be closely watching these stores over the next 12 months.
Information to help business owners is available at Getting it right (ird.govt.nz)