THE Government should introduce a one-off tax and social welfare "amnesty" to bring offenders back into the tax system, business lobby group ISME said yesterday.
An amnesty would allow individuals to legitimise "hidden economy" earnings, and should be followed by a "zero tolerance" regime for offenders, Irish Small and Medium Enterprises Association boss Mark Fielding told TDs and senators.
A perception that those in positions of leadership in Ireland are not carrying their share of the tax burden is making the situation worse, he added.
"Many householders resent the politicians, bankers and auditors, to name but a few, who have fiddled, evaded or not paid their proper tax," he said.
Mr Fielding told an Oireachtas Committee that the black economy costs the state an estimated €5bn a year in lost tax.
Rogue businesses operating outside the tax net create an unfair playing field that makes it harder for tax-compliant businesses to compete, he said.
He was speaking at a meeting of the Joint Oireachtas Committee on Jobs, Enterprise & Innovation.
Unfair competition from "black economy operators" is on the rise, according to chairman of the Small Firms Association (SFA), Aeneas Noonan.
"Leakage to the black economy is now estimated to be as high as 14pc of the total economy, or half a billion euro each month, that the taxman does not have access to," he said.
Both ISME and the SFA called for a public awareness campaign to highlight the cost of the black economy in damaging business, jobs and tax income for the State as well as for consumers.
The business lobby group named tobacco and fuel smuggling as key areas of concern for retailers. Shopkeepers know when smuggled tobacco is being sold in their neighbourhood because there is a fall in demand for the taxed product, TDs were told.
Homeowners should be encouraged to only use tax-compliant tradespeople, ISME said.
Harsh punishments, including fines and jail sentences, are needed to act as a deterrent, and those who provide untaxed goods and services and customers should be penalised, the committee was told.
Courts rarely apply maximum sentences even when prosecutions take place, according to the SFA's Noonan.
ISME said that many cash-only services are carried using commercial vehicles that benefit from a low rate of vehicle registration tax, and said checks should be carried out to make sure those who benefit from the tax break for vehicles are tax-compliant.