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Tax Amnesty

Tax Amnesty. Union of Banks of Armenia Armenia 2007. In different time periods different tax amnestied had been conducted around the world Europe ( Belgium, France, Ireland, Italy, Switzerland ) Latin America ( Argentina, Bolivia, Brazil, Chile, Columbia )

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Tax Amnesty

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  1. Tax Amnesty Union of Banks of ArmeniaArmenia 2007

  2. In different time periods different tax amnestied had been conducted around the world Europe (Belgium, France, Ireland, Italy, Switzerland) Latin America (Argentina, Bolivia, Brazil, Chile, Columbia) Asia(India, Malaysia, Pakistan, Sri Lanka) Pacific(Australia, Indonesia, New Zealand, The Philippines) • and sometimes more than once • From November 29, 1982 till the present day, a considerable number of more than 60 amnesty programs have been conducted in US states

  3. What does Tax Amnesty bring? • Tax revenue in the short run According to a 1998 source • the highest amount of money collected through a tax amnesty did not exceed 2.6 % of total tax revenues • the lowestrevenue was equal to 0,007% of total tax revenues • Reduction of the administaration cost • No cost associated with audit and enforcement • Repatriation of the capital

  4. What does Tax Amnesty bring ? – cont’d • Bring the evaders «back to the route of honesty» • New taxpayers enter the system • Increase in compliances • Information about the taxpayers and their activities Note: In general the state require the taxpayers coming forward under amnesty to submit an application disclosing information about operations. Source: German Law Journal # 4

  5. The important aspects of the amnesty Duration One-time-only grace period • 2 months – 1 year • It may be prolonged Multiple amnesties • in US from 1982 till present 60 amnesty programs Permanent standing amnesty • in US 1919-1952 • Similar programs in the tax system of • Canada • Germany • The Netherlands • Norway • Sweden

  6. The important aspects of the amnesty Agents of the government for implementing the amnesty • Banks • Credit organizations With corresponding retail operations licenses

  7. The important aspects of the amnesty The eligibility of taxes • In general it may refer to all taxes • May vary from country to country Germany • Income tax • Corporate tax • Turnover tax • Wealth tax • Trade tax • Inheritance tax • Gift tax • Tax deductions State of MichiganTax Amnesty Program2002 • Intangibles • Inheritance • Severance • Motor Fuels • Withholding • Individual Income Tax • Single Business Tax • Tobacco Products • Estate

  8. Amnesty Tax Collection from Individual and Businesses 70 $63,1 60 50 40 Millions 30 $18,8 20 10 0 Individual Taxes Business Taxes The important aspects of the amnesty The eligibility of participants Those that are not under the investigation • Individuals • Firms/Businesses State of MichiganTax Amnesty Program2002

  9. The important aspects of the amnesty Percentage Varies from country to country • India 30% (July-December, 1997) • Italy 2.5% (November 2001- May 2002) • South Africa: different (August 2006- May 31, 2007) Example R ( South African Rand )=ZAR1 US dollar =7.3 ZAR

  10. What does it give to the participant? May vary from country to country • It is an opportunity for those who became evaders by chance and want to correct their mistake • No later investigation & penalties • Reduce civil & criminal penalties • Pay all previous taxes by decreased percentage • Enter into installment payment agreement However the reduced interest rate & penalty provisions are somewhat of a “carrot & stick” approach to tax collection. More often the amnesty is followed by increased penalties and stricter enforcement. Source: German Law Journal # 4

  11. When to do the tax amnesty? • When it is expected to do • changes in the tax law • increase in taxes • The legislative power intends to end a period of time • Budget gaps/Revenue shortfalls

  12. Disadvantages • It makes taxpayers aware of the tax evasions • It is a signal that tax evasion is not a big guilt • The generated revenue does not cover the expenses • It underlines the weakness of the tax enforcement policy • Decrease the receivables of the consequent year • The amnesty in 2002 in Michigan decreased the revenue of the FY 2003 by $18.4 million • May not attract the targeted hard-core evader • Taxpayers will decrease the compliance and wait for a new amnesty

  13. Instead Disadvantages – cont’d Aspects of equality between tax evaders and honest taxpayers • In case of the amnesty the government refrains form punishment • The taxable person gives up his/her anonymity and opens concealed fortunes or incomes • He/she will have to pay full taxes not only for the past but future periods as well The fiscal motives and the intention to lead people back to legality are reasons justifying the unequal treatment resulting from the tax amnesty. Source: German Law Journal # 4

  14. However, the proponents of tax amnesty note: “Honest taxpayers generally do not appreciate risks and are not likely to change their habits.”

  15. How guarantee effectiveness? • Attract tax dodgers by wiping out past burdens by decreasing or even eliminating back taxes • Increase post amnesty enforcements • Increase penalty and audit rates • Impose sanctions on those taxpayers who had not taken the advantage of the benefits provided by the amnesty • Well publicize • Organize taxpayers’ education programs • Improve customer service quality

  16. How guarantee effectiveness?-cont’d • Assure that it is one-time-only opportunity • Otherwise the effect will not be satisfying State of MichiganTax Amnesty Programs

  17. Russia • 80% of transactions of large enterprises take place through a barter system, because there is no liquid cash available to pay taxes. Before the decision about implementing a tax amnesty program What to do, apply the tax amnesty program to persons already convicted under the Criminal Code Article "Tax Evasion“, or not? The decision was made Duration: March 1, 2007- January 1, 2008 Eligibility: Incomes received before January 1, 2006 Can not apply: Individuals whose guilt to tax crimes has been established by the court of law Percentage: 13% • The taxpayer will be protected from fiscal bodies’ claims to the extent of the sum on which he was paid 13%.

  18. Tajikistan’s example • April1-June10, 2003 Legalized • $187 million • Over 1 million rubles • 61,000 euro Those charged with capital-related crimes would get a clean slate. For those who legalize their capital can get • Examptions from state duties on • Patents • Registration • Licensing • Exemptions on duties on orders for • Housing • Constraction

  19. Tajikistan’s example - cont’d • Most "dirty" money in the country comes from the transport of heroin and other illegal drugs, which yields $300-400 million a year high taxes citizens outside the drug trade hide their money • A big source of unofficial currency is the labor market. Illegal emigrants send money from abroad (Russia) about $500 million; 60% in cash The threat legalization of income from contraband of narcotics and corruption can become a powerful factor for growth of organized crime, threatening to undermine the national securityof Tajikistan

  20. Kazakhstan 2001: Duration: • 1 month Repatriated: • $480 million • Participated: • almost 3,000 individuals Cash: • 88% of all deposits were made in cash Percentage: • 12% tax on legalized funds

  21. State of MichiganTax Amnesty Program2002 Duration • 15 May – July 1, 2002 Program expenses • $1.5 million + $22.9 million waived penalties Net new revenue • $30.2 million • $7.4 million more than expected The amnesty resulted in • Increase in revenue of the FY 2002 by $ 48.7million • Decrease in revenue of the FY 2003 by $18.4 million • Increase in the tax base of the FY 2003

  22. State of MichiganTax Amnesty Program2002 The purpose • Taxpayers get “fresh start” • Generate additional revenue for the State $21.2 $20.5 $13.8 $13.5 $6.6 $4.1 $2.1

  23. The Philippines (1972-1987) – 18 Tax Amnesty Programs Generated: P2.9 billion On average the money generated from tax amnesties was equal to 1.6% of total tax revenues

  24. The Philippines Tax Amnesties required mandatory filling of SALN • Statement of Assets • Liabilities • Networth (Total Asset – Total Liability ) • The percentage of tax is equal to 3% of the declared Networth

  25. Thank You ! Union of Banks of ArmeniaArmenia 2007

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