New Zealand is moving closer to becoming a cashless society, a report by the Retirement Commission suggests.

The study says the proportion of people using cash has dropped over the past three years from 84% to 77%.

New Zealanders put through more electronic funds transactions per head of population than anyone else in the world.

Paymark, which processes most of New Zealand's transactions, says it has also noticed the trend in increasing use of electronic funds transfer, or Eftpos.

A tax partner at Deloitte says completing transactions with cash enables some people to avoid paying goods and services tax (GST) or income tax.

Greg Harris estimates this could cost the Department of Inland Revenue as much as $7 billion in tax each year.

Mr Harris says greater use of Eftpos could help to reduce the level of tax evasion.

However, the president of the Auckland Council for Civil Liberties says the trend towards a cashless society is concerning.

Barry Wilson says removing cash completely would have a big impact on people's privacy.