Alex Hawkes suggests that one way to solve the UKs’ tax avoidance issue is to make tax returns a matter of public record. Nice idea. They do it in the US I believe – politicians are particularly sensitive to this stuff. But it won’t stop the adventurous from engaging in exotic schemes. That’s a function of a system that can be walked around, even if it is by a tortuous route.
Neither will the idea of general avoidance provisions like they have in Canada and Spain. I can only speak for Spain but here, tax evasion is a national sport that pervades every part of society. Buying a house requires you settle at least part in cash. It’s illegal because it partially avoids the 7% transfer tax (and you thought Stamp Duty was bad?) but it happens with everyone’s tacit agreement. Including the notaries who are supposed to police this kind of thing. In fact you can’t buy a property (most of the time) unless there’s a cash component. Hacienda (Spain’s HMRC) has put out an edict requiring notaries to put a stop to this practice. It won’t happen any time soon. I understand that you go to see your advising accountant to get advice on how much you should declare as income and the manner in which to do that. Lawyers regularly take fees in cash. They issue an un-numbered receipt. Personal cheques are pretty much useless because no-one accepts them.
Spain’s direct tax system is in such a mess they’ve all but given up attempting to police it on any level the UK taxpayer would understand. Instead, they’ve figured out that taxing property is a sure fire way of filling the state’s coffers. My guess is they’re missing up to 25% of what they could take.
The same is broadly true in France where some estimates put evasion as high as 30%. Hardly surprising for a country that has eye watering social security costs that are an effective employment tax of around 40%.
The other side effect of what is essentially a cash economy is that it creates a magnet for illegal activities like the drug trade. Last Christmas for instance, a tonne of hash washed up on the shores of Moraira – one of the more exclusive areas of the country. The papers regularly talk about drug seizures. It wouldn’t be so endemic without a cash based economy (IMO) though others will no doubt mention Spain’s relative tolerance for the drug trade.
Even if income tax is at 1% people will still try and find ways of avoiding it. Forget the moral dimension, it’s a fact of life. Nevertheless, public accountability is a step in the right direction. Provided of course that HMRC has the technical ability to make it work. I’m sure Nichola Ross Martin would have something to say about that!
A fair tax system is the second step but as far as I can tell, the public perception is the UKs tax system is perceived as increasingly unfair.
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