THE Irish Small and Medium Enterprises Association estimates taxpayers could be losing out on up to €5bn in revenue due to the black economy.
ISME believes activities such as smuggling and non-reporting of income by both firms and individuals to the revenue are on the rise. The black economy accounts for up to 16pc of the country's entire economic output, according to ISME.
It estimates up to €5bn in tax revenue is lost to the Exchequer and recommends tougher penalties for offenders.
ISME also wants to see more co-operation between Government agencies to stop cross-border smuggling and reforms aimed at encouraging legitimate employment over "jobs for cash".
"As the country remains in recession there has been a noticeable increase in black economy activities, with catastrophic consequences for those legitimate companies. Consequently, hundreds of businesses are being forced to close with thousands of jobs lost in the process," ISME's chief executive Mark Fielding said.
"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.