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					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)
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
    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
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
   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
                             Norway
            Germany                  Sweden
            The Netherlands
     The important aspects of the
             amnesty
Agents of the government for implementing
 the amnesty


   Banks                  With corresponding retail
   Credit organizations      operations licenses
        The important aspects of the
                amnesty
The eligibility of taxes
   In general it may refer to all taxes
   May vary from country to country
                                           State of Michigan
Germany                                Tax Amnesty Program 2002
   Income tax
                                  Withholding              Intangibles
   Corporate tax
   Turnover tax                  Individual Income Tax    Inheritance
   Wealth tax                    Single Business Tax      Severance
   Trade tax                     Tobacco Products         Motor Fuels
   Inheritance tax
   Gift tax                      Estate
   Tax deductions
        The important aspects of the
                amnesty
The eligibility of participants
Those that are not under the investigation
 Individuals
                            Amnesty Tax Collection from
 Firms/Businesses           Individual and Businesses
                                      70
                                                                   $63,1
                                      60
                                      50
                           Millions



                                      40
                                      30
                                      20         $18,8
                                      10
State of Michigan
Tax Amnesty Program 2002               0
                                           Individual Taxes   Business Taxes
           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
       From             To                           Levy
  R-               R 35,000    No levy payable

  R 35,000         R 100,000   2% of the amount above R 35 000

  R 100,000        R 250,000   R1 300 + 3% of the amount above R 100 000

  R 250,000        R 500,000   R5 800 + 4% of the amount above R 250 000

  R 500,000        and above   R15 800 + 5% of the amount above R 500 000
R ( South African Rand )=ZAR
1 US dollar =7.3 ZAR
   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
    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
                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
                Disadvantages – cont’d
Aspects of equality between tax evaders and honest taxpayers

   In case of the amnesty the government refrains form punishment

                                     Instead

   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
However, the proponents of tax amnesty note:

 “Honest taxpayers generally do not appreciate
 risks and are not likely to change their habits.”
     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
        How guarantee effectiveness?-cont’d

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

                                                             Almost Twice as Many Tax Returns Filed Under
                                                                      1986 Tax Amnesty Program

                                            160,000
                        Number of Returns




                                                                                             128,218
                                            120,000
                                                                               81,043
                                             80,000                                                66,855
                                                             47,175                 53,001

                                             40,000
                                                                      13,854

                                                 0
State of Michigan
                                                        New Taxpayers            Existing        Total
Tax Amnesty Programs                                                           Assesments
                                   1986               2002
                                   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%.
                        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
          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 security of Tajikistan
                   Kazakhstan
2001:
Duration:
   1 month
Repatriated:           Participated:
   $480 million        almost 3,000 individuals
                       Cash:
                        88% of all deposits were
                       made in cash
                       Percentage:
                        12% tax on legalized funds
                 State of Michigan
             Tax 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
                     State of Michigan
                 Tax Amnesty Program 2002

The purpose                                Michigan's Tax Amnesty Nets                         New Money
   Taxpayers get                        $31.7 Million in New Revenue &
                                                                                               Prior Assessments
    “fresh start”                      $50.2 Million from Prior Assessments
   Generate                     $25
    additional                         $21.2     $20.5
    revenue for the              $20
    State
                                                             $13.8
                      millions




                                 $15
                                                                         $13.5

                                 $10
                                                                                     $6.6
                                 $5
                                                                                                   $4.1
                                                                                                             $2.1

                                 $0
                                         SBT     Interest   Income Tax   Sales Tax   Income Tax    Use Tax    Other
                                                              Annuals                Withholding
                    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
                 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
Union of Banks of Armenia
       Armenia 2007