The Fiscal Till and Other Novel Ways to Prevent Tax Evasion: Any Relevance for Improving Tax Compliance in New Zealand?

Abstract

The cash economy and associated tax evasion is an on-going issue for most tax administrators. Tax evasion reduces national tax revenue, shifts the tax burden on to other taxpayers such as salary/wage earners and undermines confidence in the tax system affecting voluntary compliance as well as the competitiveness of honest businesses.Some sectors of the economy are dominated by small traders who do most of their sales in cash. These sectors are often associated with high levels of tax evasion through the suppression of cash sales. In response to this problem an increasing number countries have legislated for traders in certain industry sectors to use approved electronic cash registers or data processing systems which print customer receipts as well as record sales in a secure electronic memory which can be audited or monitored by tax authorities. While New Zealand’s revenue laws require taxpayers to maintain certain records, there is no legislative requirement to employ any type of electronic data processing equipment to do so. Even when they do, they are not required to use ones with features to facilitate tax audits or outside verification and taxpayers have an unfettered choice in the equipment (if any) they employ to maintain accounting records. This paper explores the issue of whether the measures enacted in Europe and North America would be effective in New Zealand to reduce tax evasion in the small business sector. The experience of these European and North American countries will be examined as well as the compliance model and strategy adopted by the New Zealand Inland Revenue Department.