The group representing small and medium businesses has estimated that the State could be losing out on up to €5bn in revenue due to the existence of a growing 'black economy'.
The Irish Small and Medium Enterprises Association said it believes activities such as smuggling and non-reporting of income by both firms and individuals to the revenue are on the rise.
The growth of illicit activity and a thriving 'nixer culture' are the key contributors to a black economy, which ISME says accounts for up to 16% of the country's entire economic output.
It has called on the Government to introduce tough new measures to tackle the black economy.
ISME recommends stiffer penalties, more cooperation between government agencies to stop cross-border smuggling and a reform of the tax and welfare systems to encourage legitimate employment over what it calls '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.
Separately, employers' group IBEC says the number of companies planning to recruit new staff over the next three months is more than double compared to the same period last year.
Its second quarter Business Sentiment Survey shows that the majority of companies remain confident in the trading outlook.
20% of firms intend on hiring new staff over the coming months.
IBEC's chief economist Fergal O'Brien said that almost all of the new jobs will be provided by business involved in exporting goods and services.
Another survey from IBEC's sister organisation, the Small Firms Association, finds the number of smaller companies prepared to hire new staff is higher than the number anticipating redundancies for the first time since 2009.