Restaurant, construction sector workers sympathize with smaller
evaders: study
Don Butler, The Ottawa Citizen
Published: Monday, September 01, 2008

A limited amount of tax evasion by otherwise honest business owners is
justifiable, say people who run companies in the construction and
restaurant sectors.

Their views are reported in a $133,000 study done for the Canada
Revenue Agency that examined why workers in those two sectors are
among the most frequent participants in Canada's multibillion-dollar
underground economy.

The study, done by Sage Research, is based on 20 focus groups held
last February with 163 owners and managers of small- and medium-sized
construction and restaurant, bar or catering businesses. It offers a
rare window into a thriving, but mostly uncharted, segment of the
economy.

The study found participants don't have a black-and-white view of
those who conceal income to avoid paying taxes.

Someone who evades a large amount of tax "is generally seen as
committing a crime and deserving to be punished," the study says.

But for smaller evaders, "some degree of evading tax is quite often
seen as justifiable," it reports. "Depending on the circumstances,
these 'small' tax evaders were not seen as being 'bad' people."

Concealing income may be acceptable, participants said, if done to
keep a basically legitimate, but struggling, business afloat.

Many also justify cheating because they think small business pays too
much tax, government wastes the money it collects anyway and small
business people deserve compensation for working long hours.

"I spend 150 hours every two weeks at work. I'm tired and sometimes I
don't get a day off," said one participant quoted in the study. "I
deserve some extra money."

Many also sympathized with wait staff who don't declare tip income,
noting they're not well paid and need all their tips to earn a
reasonable living.

Some participants described tax evasion as a "victimless crime," while
others called practices such as paying employees "off the books" or
doing cash jobs for customers as a "win-win" for both parties.

Estimates of the size of the underground economy vary widely, but a
2005 study by Lindsay Tedds of the University of Victoria put it at
15.3 per cent of gross domestic product. That equates to about $240
billion.

"That is our absolute best guess estimate," Ms. Tedds said in an
interview. "And it really is a guess."

The number includes money earned through illegal activities, which the
revenue agency doesn't count in its definition of the underground
economy.

Ms. Tedds said the problem has been ignored for far too long. "I just
don't think it has captured the policy focus at higher levels that it
should."

The issue is important because those in the underground economy aren't
paying their fair share of the tax burden, she said. As a result,
"we're paying higher taxes than we should be otherwise."

According to the study, paying short-term workers off the books --
with none of the requisite paperwork or deductions -- is quite common.
Completing the paperwork for workers who last only a few weeks is time-
consuming and costly, participants said.

Some who apply for jobs in the restaurant sector prefer to be paid off
the books, many said.

They include people receiving government benefits, newcomers who don't
have legal working status, people with student loans, divorced or
separated people who face alimony or child support payments, and those
with regular jobs looking to earn extra money.

As well, the study says, labour shortages can leave employers feeling
they have no choice but to hire a worker off the books.

Participants said some bars and restaurants use two cash registers --
one in the public area, where all sales are recorded, and one in the
back, where only some sales are recorded. Only the income from the
latter is reported.

In construction, the underground economy thrives in the home
renovation market. According to the focus groups, that's largely
driven by a preference for cash payment by homeowners, who assume
they'll save money.

"They're just trying to get the best deal," said Ms. Tedds. "They
don't view it as being an illegal activity."

The study says some in the home renovation sector work almost entirely
underground, especially shift workers such as firefighters, police and
teachers, who do construction work during their time off.

The same is true of caterers who work from home. Some are professional
chefs who cater private dinner parties on the side. "They call it
personal chef service," said one participant. "It's huge."

One thing that limits participation in the underground economy is "the
desire to be an honest, law-abiding person," the study says.

While the risk of getting caught is also a consideration, few focus
group participants knew of businesses in their sector being prosecuted
for tax-related underground economy activity in recent years.

As a result, many assume the risk of getting caught is relatively low.

Most participants felt that getting caught for tax evasion would have
no impact on a restaurant, bar, private caterer or home renovation
business.

"Private individuals are perceived to care about quality and price,
and to not care much about whether a business owner has been caught
for tax evasion -- unless the amount of tax evaded is very large," the
study says.

However, most thought commercial customers would react badly if a
contractor was caught evading taxes, partly because they're more
likely to have the attitude, "if you are cheating the government, you
might be cheating me."

Catherine Jolicoeur, spokeswoman for the Canada Revenue Agency, said
the study will help the agency inform and educate businesses about the
"risks and consequences" of participating in the underground economy
and refine its strategies for addressing the problem.

© The Ottawa Citizen 2008