Tax Amnesty

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Tax Amnesty
Union of Banks of ArmeniaArmenia 2007
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• 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

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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 lowest revenue 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

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What does Tax Amnesty bring ? contd

• 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
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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

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The important aspects of the amnesty

• Agents of the government for implementing the
  amnesty
• Banks
• Credit organizations

With corresponding retail operations licenses
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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 Program 2002

• Intangibles
• Inheritance
• Severance
• Motor Fuels

• Withholding
• Individual Income Tax
• Single Business Tax
• Tobacco Products
• Estate

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The important aspects of the amnesty

• The eligibility of participants
• Those that are not under the investigation
• Individuals
• Firms/Businesses

State of MichiganTax Amnesty Program 2002
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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
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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
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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

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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

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Disadvantages contd

• 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

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

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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

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How guarantee effectiveness?-contd

• Assure that it is one-time-only opportunity
• Otherwise the effect will not be satisfying

State of MichiganTax Amnesty Programs
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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.

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Tajikistans 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

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Tajikistans example - contd

• 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 security of Tajikistan

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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

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State of MichiganTax Amnesty Program 2002

• 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

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State of MichiganTax Amnesty Program 2002

• 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
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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

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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

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Thank You !
Union of Banks of ArmeniaArmenia 2007