First person in New Zealand to be convicted of using an electronic sales suppression tool receives seven months home detention

Gurwinder Singh who runs Just Pizza in Waiuku, south of Auckland, has the dubious honour of being the first person in New Zealand to be convicted and sentenced for "aiding and abetting his company's possession of electronic sales suppression tools" (ESSTs).

ESSTs were outlawed in New Zealand in late 2022. Known as "zappers", "phantomware", the software and/or devices are used to manipulate point of sale transaction data. This is done to understate or even completely hide revenue, so as to evade tax.

Cloud-based PoS software, which can be difficult for tax authorities to audit as it's often not hosted in New Zealand, and setting terminals into training mode so that they don't record transactions permanently, are other methods.

Inland Revenue declined to reveal what type of device or software Singh had used.

Singh admitted during an interview with the Inland Revenue that he had hid income from his tax agent, so as to reduce the amount of tax he had to pay.

The pizzeria also employed four staff including Singh, who filed pay-as-you-earn (PAYE) returns for just two workers.

IRD said the total goods and services, income and PAYE tax discrepancy resulting from Singh's offending was nearly $200,000.

For his offending, Singh was sentenced this week at the Manukau District Court to seven months home detention for tax evasion and aiding and abetting his company for possessing ESSTs.

The Australian Taxation Office (ATO), Britain's Revenue and Customs (HMRC) office, and the United States Internal Revenue Service (IRS) launched Operation Flutter, a joint global crackdown on businesses suspected of supplying, and using, ESSTs for tax evasion, in 2022.

At the time, the ATO deputy commissioner John Ford explained that a PoS system with ESST enabled could permanently delete, re-sequence, and misrepresent transactions, reduce sales values and consequently, produce fake records.

“So what might happen is that the customer orders a $60 steak and a $100 bottle of wine and the ESS tool then puts it through the point-of-sale system as a $10 bowl of chips and a $4 bottle of soft drinks," Ford said.

Australia banned ESSTs in 2018, with penalties of up to A$1 million for manufacturing, distributing, possessing, using or selling ESSTs.

Following initial Operation Flutter raids in 2022, that netted around $40 million, the ATO continued to crack down on ESSTs, and in 2024 issued $23 million in assessments. 

This year, in February, the ATO's Serious Financial Crime Taskforce (SFCT) warned it's monitoring businesses suspected of using ESSTs, and recommended anyone doing so should come forward and make voluntary disclosure rather than waiting to be found out.

SFCT said it will monitor personal spending and compare it to business income, to uncover suspected ESST use.