Drug dealers pay tax under secrecy (NZ)

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Drug dealers pay tax under secrecy

Manawatu Standard
TUESDAY , 31 OCTOBER 2006
By KIM THOMAS

Drug dealers are paying tax to "legitimise their income" and claim accident compensation, but the Inland Revenue Department (IRD) is legally prevented from passing incriminating details to police.

A Press investigation has revealed a "secrecy provision" in tax laws prevents the disclosure of taxpayer information, whether income is legal or not, frustrating police eager to get evidence related to crime.
IRD special audit manager Christine Stella said many drug dealers paid tax, in most cases to legitimise their income and avoid investigation for tax avoidance or evasion.
Some drug dealers identified themselves as such on their tax returns, while others described themselves as consultants or salespeople.
"We can't talk to the police or anybody about tax details," she said.
"When we (IRD staff) put on our tax hats we don't make moral distinctions, despite what our personal feelings might be. The tax act doesn't make moral distinctions between legal or illegal incomes."
Some dealers also paid up for moral reasons – to feel better about contributing something positive to society, she said.
Filing a tax return also allowed people in the "black economy" to make Accident Compensation Corporation (ACC) claims. For example, a cannabis grower who injured his back or was affected by chemicals used in the operation could make a claim, Stella said.
The secrecy provision ensured all taxpayer information was safe and made it more likely those in illegal occupations paid tax, which they would probably not do otherwise.
It was impossible to determine the number of drug dealers paying tax or amounts paid as the IRD kept no official record of income derived from illegal sources.
Industry experts estimated the combined value of cannabis and methamphetamine markets to be almost $300 million a year.
The drug peddlers who paid tax were most likely to be low or middle-level operators as gang and cartel level dealers usually had sophisticated money-laundering systems. Before the Prostitution Reform Act, sex workers also used the secrecy provision to legitimise their income.
Police Association spokesman Greg O'Connor said it was incredibly frustrating that Inland Revenue could not give police potentially incriminating information.
"They are about getting money but we are about putting the drug dealers in jail and shutting down their operation.
"We think that's a damn sight more important than getting their taxes," he said.
"In an ideal world we could get our hands on that information, we could convict them of drug dealing and then the tax department could take all the proceeds."
O'Connor said one "mind-boggling" aspect of the secrecy clause allowed drug dealers to write off expenses involving other criminals and illegal activity.
Police national headquarters spokesman Jon Neilson said that while police might like Inland Revenue to provide evidence of drug dealing, "the law is the law and so that's what we have to work with". Information law expert John Edwards said tax law was based on the principle of voluntary compliance.


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