Self-employed workers are on average hiding 20 per cent of their income from the taxman, according to research released by Inland Revenue.
The tax department estimated that the under-reporting by the 55 per cent of self-employed people who were not working through companies was costing the Crown about $850 million a year in lost taxes, Inland Revenue has confirmed.
Under-reporting by the remainder of self-employed people who had set up companies and trusts was harder to estimate, it told Revenue Minister Stuart Nash in a briefing paper.
Despite the seemingly high level of tax avoidance, Inland Revenue said that comparable studies overseas had suggested self-employed people in other countries were under-reporting their income by between 17 and 42 per cent.
“This suggests that New Zealand is relatively well placed relative to other countries,” it said.
“At the same time there is an important level of under-reporting to address.”
The research was conducted by Inland Revenue and researchers at Victoria University, based on data from between 2006 and 2013.
Inland Revenue adopted a new strategy to crack down on the “hidden economy” in 2010 and said it was possible that had improved the situation.
The findings were included in a bundle of documents released by the Tax Working Group.
Its chairman, Sir Michael Cullen, has identified the growth of the “gig economy” and the corresponding increase in the opportunity for tax avoidance as one of the issues it will need to consider ahead of the publication of its interim report on tax reforms next month.
Previous documents released by the working group in May said the Government was considering requiring people who made payments to contractors to provide more information about those payments.
Other responses under consideration include subjecting more payments to withholding tax and enlisting more help from online platforms that support the gig economy to identify tax dodgers.