Tax - more amnesty means more evasion

E. M. G. EDIRISINGHE

More amnesty means more evasion; that is taxation. Enforced leniency on anything will make anyone to stretch its advantage to the maximum leading it even to total rejection. That is human nature, whether it is in business, office or elsewhere.

If there is anything that a businessman, a professional or an employee hates most, that is taxation, of that too, direct taxation.

There are two certainties in life, death and taxation. No one can escape getting caught in the tax net either direct or indirect. One who evades taxes at one point will be caught at another point like death pursues and overtakes us.

It is the normal tendency for tax-evaders to rejoice over the success and extent of their tax evasion. Aristotle Onassis, the Greek multi-billioner, had specialised in tax evasion and even went to the extent of offering his expertise in that field for others who needed it, free of charge.

However, the psychology of a tax-evader is to hide the fact that he evades taxes, but pose himself as a genuine taxpayer.

The very people who illegally evade paying taxes, openly seek for ways how to legally avoid paying them, too. In fact, it is great pleasure for them to retain more money in hand for more investment, more expenditure and more pleasure.

However, the Government should find the money to steer the ship of State together with the taxpayers as well as the non-taxpayers, which is the key to more income and more profits for the businessmen too.

In the USA over 65 percent of the population are (whereas it is just two percent in Sri Lanka) paying income tax which shows the efficiency of their tax administration and also one reason for their economic prosperity.

Their sense of patriotism is tremendous that they believe that the State should sustain itself firmly and strongly for further economic growth and social well-being of the people in general.

Presently, various avenues and theories are being advanced on how to combat tax evasion, a disease from which many businessmen and professionals suffer.

Even measures to identify the area of tax evasion in order to combat and remedy it are resisted not knowing that the State and the people will be the ultimate losers in the event of excessive evasion.

Some people vaguely adduce a reason for evasion as they feel that there is gross waste of public funds through negligence, ill-planning and corruption.

This is only another ruse to justify tax evasion under the pretext that the tax-evaders alone are just, fair and honest.

The Government decision to reopen selected tax amnesty declarations which were made in 2003 on promise and trust that no questions would be asked when the undisclosed income and assets were declared within a particular period, and then they were allowed to continue their business unhindered.

How did they continue thereafter? Was it in the manner in which they behaved prior to the amnesty declaration or had they come out clean and are open and genuine in their subsequent annual returns of income.

With the amnesty, the tax-payers were expected to start off on a clean sheet and that is one of the prime objectives of the declaration of a tax amnesty.

However, there were thousands of taxpayers who did not want to come clean under the amnesty as they did not want to start off on a clean sheet because they find that evasion still pays and they enjoy it more than starting off on a clean sheet.

A criminal finds it is more advantageous and satisfying to hide rather than to surrender and face the consequences later.

On the other hand, those who came under the tax amnesty were genuinely hopeful that one day there would be another tax amnesty in future and were awaiting its arrival to come under that too, and continue to practise much more paying evasion which he is used to and found very useful too.

So one amnesty breeds more evasion and more evasion leads to more amnesty, and so on and on.

To mean that amnesty given in 2003 was for both good taxpayers and tax evaders is misleading. Among the taxpayers there are those who do not pay the correct tax and those who do not pay tax at all.

Both these groups benefit by the amnesty declared in 2003. Yet, there are very honest taxpayers who have nothing hidden to come under the protective umbrella of an amnesty which was expected to give a guarantee of full immunity.

Some of those guilty of tax evasion did not wish to come out clean because they were conscious of their guilt and admission of guilt does suit neither their business nor their standing. In general, those who voluntarily get a tax file opened and pay taxes are those who wish to obtain a bank loan or some other financial benefit, not otherwise.

A good taxpayer’s return does not leave room for any further queries or any investigation even in future because it is complete in all aspects. So amnesty is always for tax-dodgers. To believe that it is the one who submits a return and pay is always being harassed is without foundation.

That is part of the routine scrutiny as both the taxpayer and the tax consultant or the accountant could make a mistake due to an oversight or a misinterpretation which needs rectification.

If the IRD is to leave every return unscrutinised, it amounts to as if requesting people not to furnish a return but to just calculate the tax and pay it at a bank with which the process of taxation ends.

Any later Government may re-open the files of those who came under amnesty under a previous Government, with fresh information in hand in respect of one’s investments and sources of income.

Provision of infrastructure facilities is mainly the responsibility of the Government without which there will be no economic prosperity or thriving businesses in the country.

The greatest beneficiary of such development is the private sector and naturally they have a bigger duty to reciprocate the Government act by paying the correct tax and that too, on time. Those who question the credibility of a Government never think of their own credibility specially when it comes to part with a part of their money.

It is alleged that businesses are struggling to survive because the costs are going up; but, one should not forget that their income too, goes up along with it. In the 1960s a cup of tea was 5 cts., and an egg too was 5 cts.

Today while the former is Rs. 8, the latter too, is Rs. 8. Similarly, then a mason was paid Rs. 3.50 a day, and today he is paid Rs. 800. Then at that time, tax free allowance was Rs. 2,000 and today it is Rs. 300,000. Today no business had been closed down, and there is no slackening in the construction industry.

The country and the people are much more prosperous today than what they were in the sixties. Cost of living appears to have no bearing on overall development in the country.

Some people are lamenting that businesses are not investing and profits are dwindling. But we see that the rental value of buildings and investment in real estate and demand for vehicles has escalated. It is unjustifiable and unreasonable to say that IRD lacks credibility.

For example, if the police captures criminals, except the criminals themselves all others hail the police.

Similarly, only the tax-evaders ‘hate’ the IRD and not those who are honest taxpayers. If the IRD is expected to believe everything what the taxpayers say and close their eyes without any question being asked, the country does not need a Tax Department.

If one is displeased with the IRD for calling for information about weddings held in five-star hotels and justify them giving false names to the hotel, we can just imagine of what an amount of tax evasion is there in the country today and how much money have been earned through illegal and undisclosed means.

An honest taxpayer whose total income comes out clean through the tax net has no fear of such disclosures or declarations. If any authorised person asks someone for information about oneself and if it is interpreted as harassment, it means there is something to hide from that person, which will stand against him.

If the people who willingly pay the service charges and tips are reluctant to pay tax, that may be because that they do not get recognition whatsoever even after paying millions as tax.

As criminals have a negative approach to criminal law, the tax dodgers too have a negative approach to tax law. A criminal act is an offence against one or several individuals while tax evasion is an offence against the whole nation. Both are offences against the State.

Nobody receives tax laws with open arms. If one is to say that through re-scrutiny of a tax file the Government is teaching the people to cheat, that speaks for the integrity and honesty of the economic and social elite in the country. Honesty is in one’s character and nothing can move against such a quality.

Whatever the law a man of upright character will never cheat because it is not in him. If the government succeeds in catching the big-time tax-evaders, it is a credit to the Department and a boon to economy of the country.

The ration of direct taxes to indirect taxes in the 1960s was 75-25 and today it is 25-75 which shows as one reason for the rising cost of living and widening social imbalance. It should be at least 50-50. While the burden of indirect taxes is borne by the rich as well as the poor, the direct taxes fall squarely on the rich who are not more than 10 per cent of the total population.

The wealthy who gets the maximum benefit from the society, economy and the country should in fact not dodge and find loopholes in the law to justify, evade and avoid liability.

They must volunteer to pay the correct tax on time because they stand to gain with the economy getting a boost and more employment being generated then the country will reach economic and political stability.

On scrutiny of amnesty declarations, the tax authority has the right to trace the movement of assets and investments taken refuge in the declaration and whether they are producing any income and if so, whether it is declared in subsequent returns. Some chronic tax-dodgers too, like criminals do it to criminal law, seek to subvert the operation of the tax law to their advantage.

As there is no end to one’s greed there is nothing that one does not do to retain what he grabbed legally and illegally, honestly or dishonestly. A person who hesitates to pay even Rs. 50,000 as taxes may not be so to pay even a million as a bribe to maximise his profits or to push through a deal. One’s honesty is tested in the area where his greatest interests lie.

Not only the tax laws even the laws governing prices and bribery are repulsive to many people. Some will pay any amount of tax legally due if it earns him a niche in heaven or here, but rarely if his name is concealed and dumped together with other insignificant characters.

If payment of direct taxes earns one power, recognition and influence, there will be better compliance and less evasion. Some may see taxation as robbery sanctioned by the rule of power of the state.

If they can show that there is another alternative by which how to contribute to the defence, law and order situation and welfare of the people, it would be better without displaying displeasure and wrath over the IRD and the tax law. Is there anything that America, India, Japan can offer us as an alternative to taxation.

(The writer is a former Deputy Commissioner of Inland Revenue and an Attorney-at-Law)