Tax Evasion and Avoidance
Strategies and Initiatives Used By Cata Member Countries
This book summarises the strategies and initiatives used by tax administrations around the world to prevent, detect and deal with tax evasion and avoidance, from ‘command and control’ approaches such as penalties and sanctions to ‘responsive regulation’ such as taxpayer education and assistance.
The book, one of the fruits of a decade-long collaborative partnership between the Commonwealth Association of Tax Administrators (CATA) and the Governance and Institutional Development Division of the Commonwealth Secretariat, provides a detailed menu of approaches that tax administrators can select from, follow up with their own research and adapt to their particular circumstances.
The authors describe the conditions that foster tax evasion and avoidance, examine the most common types of evasion and avoidance behaviours and activities experienced by CATA member countries, and consider which sectors and occupations are particularly prone to tax evasion and avoidance activities.
Contents
FOREWORD
OVERVIEW OF THIS PUBLICATION
Purpose and scope
Relationship to other CATA publications
Layout of the publication
Feedback
LIMITATIONS
ACKNOWLEDGEMENTS
INTRODUCTION
Why this publication was developed
Methodology
MEMBER VIEWS ON THE COMMON TYPES OF TAX EVASION AND AVOIDANCE BEHAVIOURS AND ACTIVITIES
Individuals not in business
Businesses and corporations
Some indicators of tax evasion and avoidance
MEMBER VIEWS ON THE FACTORS CONTRIBUTING TO A FLOURSHING UNDERGROUND ECONOMY
Economic factors
Lack of employment
Poor economic development/poverty
The need to be competitive
The nature of production
Generous unemployment benefits
Cultural and social factors
Attitudes and perceptions towards taxation
Attitudes and perceptions towards the tax system, tax administration and government
Low literacy and education
Administrative and regulatory factors
High marginal tax rates
Complexity of the tax law/system
Limited resources and capacity of the tax administration
Government regulations and prohibitions
Developments in society
Technological development
Infrastructure
STRATEGIES AND INITIATIVES USED TO DEAL WITH TAX EVASION AND AVOIDANCE
Legislative control
General and specific anti-avoidance rules
Simplifying or amending the law
Strong investigative powers for tax inspectors
Powers to seize or remove materials
Application of penalties for taxpayers
Application of penalties for promoters of schemes
Prosecutions and imprisonment
Tax amnesties
Interpretative products
Choice of tax instruments
Using indirect or consumption taxes
Using presumptive methods of taxation
Decreasing direct tax rates
Using withholding taxes
Using flat taxes
Compliance activities
Review and investigations
Letters requesting additional information before initiating a formal audit
Risk-based audits
Random audits
Joint audits/simultaneous examinations with other revenue authorities
Unannounced field visits/walk-ins
Mystery shopping
Registration and enterprise reviews
Data matching/cross-checking of information
Administrative control
Merging the collection of indirect and direct taxes
Registering the tax base
Reducing compliance cost/burden on taxpayers
Emergence of autonomous revenue authorities
Creating specialised units to focus on specific industries, segments or risk areas
Using 'compliance models' or responsive regulation to deal with taxpayers
Introducing invoicing/receipting requirements
Introducing reporting, record keeping and accounting codes
Requirement for tax clearance certificates
Taxpayer assistance and education
Providing information, tools and guidance to help taxpayers comply
Reminder letters or advertisements about lodgement dates/requirements
Informing taxpayers of high risk areas
Educating taxpayers to seek invoices/receipts from suppliers
Publicising prosecution cases and the consequences/penalties for non-compliance
Providing incentives/rewards for compliance
Raffles/lotteries to increase credit card usage or requests for receipts/invoices
Providing taxpayers with the opportunity to voluntarily disclose
Using informants and tax evasion referral hotlines/websites
Providing a public register of businesses
Involving taxpayers in consultative forums
Publicising personal income tax information
Intermediary assistance and education
Establishing an independent task force of experts to advise the tax administration
Establishing partnerships with industry/professional associations
Developing industry codes of conduct to encourage self-regulation
Regulating tax advisers and practitioners
Providing incentives/rewards to intermediaries
Domestic cooperation
Information sharing with other government departments
Information sharing with other private sector organisations
International cooperation
Information sharing with other tax administrations via tax treaties
Joint task force
Research activities
Use of technology
Computer-assisted verification and audit activities
Data warehousing and data mining
Computer forensics
Staff training
CONCLUDING REMARK - THERE NEEDS TO BE A WHOLE OF GOVERNMENT APPROACH TO TAX EVASION AND AVOIDANCE
Appendix A
Questionnaire
Appendix B
CATA countries that participated in the survey
Appendix C
Figures
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