Annual report - 2004 - Part 3

Using the full force of the law from the 2004 Annual Report

We use the full force of the law when circumstances warrant it, for example, when people:

• do not file tax returns
• operate in the "cash economy", or
• engage in schemes designed to avoid paying tax.

We have also actively investigated and carried out prosecutions in cases of deliberate fraud involving false documents and tax agents who have taken their clients' funds.

Fruit picking contractor given 21-month prison sentence The Tauranga investigations team who worked on the Sharma case Front, left to right: Peter Cooke, Todd Blythe, Kane Hetherington. Middle: Mike Williams, Peter Hastings. Back: Paul Hamilton Yoginder Sharma was sentenced in Tauranga to 21 months in prison after pleading guilty to one charge of tax evasion. The Court heard that Inland Revenue estimated that a total of $168,472 had not been accounted for, however the full extent of the offending wasn't known. This year we have been focusing on tax evasion in the fruit picking and contracting sectors, particularly in the Bay of Plenty, Hawke's Bay, Otago and Marlborough. Legitimate orchardists, contractors and pickers working in the industry are welcoming Inland Revenue's efforts to stamp out tax fraud. Tony Morris, Hamilton Service Centre's Area Manager Investigations, says "We're heartened by the response we get when we're out talking to people in the orchards. Those people who don't pay their taxes are able to undercut the legitimate players, and that's not fair to all those people who do pay their fair share of taxes. "We think people realise that tax evasion is stealing from the whole community. We want the people involved in these types of tax evasion schemes - and the people who turn a blind eye to it - to understand that sooner or later they're going to get caught," says Tony.

By exercising these powers we also ensure that people maintain their confidence in the tax administration. This especially applies to taxpayers who operate their business alongside others who do not fully report their income or pay GST. They will be assured that their businesses will not be undermined by unethical operators.

Use of our powers

Sections 16 through to 19 of the Tax Administration Act 1994, gives us a wide range of powers to encourage compliance. These powers allow us to:

• access private premises
• request the books and documents
• institute enquiries under oath in a district court or before a suitably delegated officer of the department.

These powers are used sparingly in a formal way to assist gathering relevant information from, or about, taxpayers who may not be fully complying with their tax obligations. During 2003-04, we used our powers 486 times, as shown in Figure 30.

Prosecution action

In 2003-04, we took action in a number of ways. Prosecutions were taken where people had not met their obligation to file returns, resulting in:

• 553 cases for failure to file income tax returns
• 380 cases for failure to file GST returns
• 42 cases for failing to deduct or account for PAYE deductions.

Prosecutions have been taken for deliberate non-compliance within Industry Partnership industries. The most notable among these have been in the contract fruit picking industry where operators have been evading tax. The extensive media coverage of these cases sent strong messages to the public about Inland Revenue's attitude to tax evasion, and has lent support to initiatives aimed at gaining overall compliance in an industry that does not have a good compliance record.

Fraud

Our audit work has also revealed major cases of fraud. In these cases, people have used false documents to systematically defraud Inland Revenue. Two cases have also led to the prosecution of tax agents who had taken funds from their clients or refunds that had been paid by Inland Revenue. In some cases the magnitude of the fraud has meant that we have involved the Serious Fraud Office in the investigation and prosecution of the offenders.

In 2003-04 Inland Revenue completed 47 prosecutions, (both under revenue Acts and the Crimes Act) as a result of audit activity. These cases were mainly concerning evasion of income tax, GST and PAYE. A further 23 cases are pending.

Five years jail for making fraudulent rebate claims David Welsh, Team Leader, Audit who worked on the Hirawani investigation, with Loraine Elliott, Auckland South Service Centre Manager Peter Charles Hirawani was convicted in the Manukau District Court in November 2003 on 369 charges of fraudulently claiming tax rebates. He was sentenced to five years on each charge, to be served concurrently. The tax agent had claimed fraudulent rebates on behalf of clients for donations made to charity, childcare costs and fees paid to him. He then took a 15% fee. This activity took place during 1999-2000, but he filed back year returns for the tax periods 1991-99. Auckland South Service Centre staff spent two and a half years investigating the $1.8 million fraud and had the defendant extradited from Sydney. Loraine Elliott, Auckland South Service Centre Manager, says the fraud came to light when sharp-eyed investigators in Tauranga noticed large numbers of people were filing returns for previous years, claiming rebates for childcare and donations. As it became clear that the fraud had caught up people across the North Island, the investigation team grew. A dozen investigators, working in three teams, completed the case, which culminated in 376 tax charges being laid. Ms Elliott said the case was significant for Inland Revenue. "It's the biggest rebate fraud case we've had. It involved many individual taxpayers, and there were 100 witnesses called. It was a major step for us to extradite someone, and our computer forensic unit helped to produce crucial evidence. "The professionalism, commitment, persistence and hard work of our staff played a vital role," said Ms Elliott. "They were superb." A number of measures have been put into place to mitigate the risk of this kind of fraud happening in the future. These include: ensuring that rebate claim forms are not processed without receipts for the expenditure educating targeted groups about what expenditure is claimable - this is resulting in voluntary disclosures.

Tax litigation

The principal focus of our tax litigation activity in 2003-04 has been on alleged tax avoidance with action taken against two of the largest alleged tax avoidance schemes. These are currently before the courts, therefore we are unable to provide further comment.

Other pages in: Annual report - 2004 - Part 3

• Our compliance model from the 2004 Annual Report
• Making it easy to comply from the 2004 Annual Report - 1
• Making it easy to comply from the 2004 Annual Report - 2
• Tailored services meeting needs from the 2004 Annual Report - 1
• Tailored services meeting needs from the 2004 Annual Report - 2
• Focusing audits on long-term compliance from the 2004 Annual Report
• Managing debt and outstanding returns from the 2004 Annual Report - 1
• Managing debt and outstanding returns from the 2004 Annual Report - 2
• Managing debt and outstanding returns from the 2004 Annual Report - 3
• Adjudicating and ruling on the law from the 2004 Annual Report

Date published: 15 Nov 2004

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