ISME, the Irish Small & Medium Enterprises Association, has called on the Government to introduce tougher sanctions on those who avoid taxes on goods and services. The Association warned that rogue traders, cash only merchants and racketeers are ‘killing’ tax compliant small businesses and costing the state billions in unpaid taxes.
According to ISME Chief Executive Mark Fielding, “While it is difficult to put an actual figure on the costs of the black economy, previous international estimates (in better times) suggest that in Ireland it amounts to 14% of GDP. ISME estimates would certainly put the figure at nearer to 16%, which would equate to €25bn this year and the figure could be much higher. The amount of lost taxes is conservatively estimated at €5bn, which would go a long way to reversing the current exchequer revenue shortfall.”
“The ‘nixer’ culture, in particular, is very much alive and well and there has been a definite shift towards a ‘cash only’ shadow economy. This is particularly evident in the construction and maintenance sectors, where there are increased incidences of ‘jobs for cash’, completely undercutting legitimate companies, who in many instances report that potential clients are demanding that they pay ‘off the books’ to save VAT,” continued Fieldin
Fielding was also particularly critical of the social welfare system: “The attractiveness of Ireland’s social welfare system is also contributing substantially to the ongoing problem. As the system is not designed to make it easy for people to take irregular temporary work, the effect is that individuals end up signing on and also working when they can, leading to millions in illegitimate dole claims. With rising costs and taxes, there’s also an incentive not to work, or to work but avoid tax. The system itself therefore offers a significant incentive to operate within the shadow economy, encouraging undisclosed employment without taxes or regulations, while claiming assistance from the state.”
“It is also vital that there is an immediate clamp down on racketeering and rogue operators as evidenced by the level of seizures of contraband, and yet the massive amount of illegal goods that are available in the marketplace, which is costing the exchequer millions of euro per annum.”
“The level of black or unobserved economy activities depends on the incentives and opportunities to cheat. It is vital that the Government reduce the incentives to take business underground, by reviewing tax rates and public utility costs, by deregulating the labour market, addressing social welfare fraud and cutting red tape and a total revamp of the Department of Social Protection,” he added.To address the problem, ISME calls on the Government to introduce the following initiatives:
A high profile public campaign to educate the public on the damage to the wider economy and the impact this activity has on the ability of government to provide public services and outline the severe consequences of participating in the shadow economy
A radical review of the current taxation and social welfare system to ensure that the ‘tax wedge’, the monetary difference between being gainfully employed and claiming social benefits, is changed.
Greater inspection and policing of the Social Welfare assistance, to ensure that all claims are legitimate.
A total overhaul of the Department of Social Protection to make it ‘fit for purpose’ and facilitate employment opportunities.
Harsher penalties should be imposed on those caught operating in the black economy.
Improve enforcement of laws and regulation to prevent black economy activities rather than increasing the number of laws and regulations.
Tax incentives should be offered to home owners who use tax compliant, verifiable trades people.
Revenue to make visits to new traders for educational and risk assessment purposes.
Increased co-operation and sharing of information among all the state agencies with responsibility for investigating the black economy and business crime.
Greater cooperation between state agencies and their international counterparts to prevent cross-border illegal activities.
In conclusion, Fielding outlined that it is imperative that the state facilitates businesses to compete on a level playing field, by eliminating black economy operators, through an immediate clamp down on racketeering, social welfare fraudsters and by sending a strong message to potential rogue operators that their actions will not be tolerated and that serious penalties will be rigorously enforced.