ECONOMY

The losing battle against tax evasion needs new mentality

Surely everyone wants companies to increase their exports. There is, however, a Finance Ministry circular from 1994 which is still valid and adhered to by tax authorities. According to that, enterprises cannot make more exports than the previous year and be exempt from value-added tax (VAT) as they should be. Anyone who is «unlucky» or a «fool» and manages to export more this year than last should be prepared to pay the appropriate VAT and expect checks by the tax officials in order for the tax to be returned. It is a common secret, of course, what an inspection of the tax return means for the taxpayer… On the other hand, in most sectors, small companies cannot survive the cost of VAT which normally does not apply in the case of exports. Increasing the costs by 19 percent within the context of the intense competition in the international market renders exporting impossible. Therefore, companies would rather restrict their exports to last year’s levels to stay clear of trouble. There are many similar cases creating an invisible web that hampers growth. This adds investigations with the physical presence of the tax officials, instead of electronic checks which are impersonal and efficient, and creates a series of bureaucratic procedures that encourage unfair transactions. All this may derive from good intentions, but on the pretext of limiting tax evasion a bureaucratic beast is created that eventually costs the state more that what it collects for the public coffers. And yet there is a right model for combatting tax evasion; it is found in the measures against tax evasion in the trade of heating oil, announced last week. It relies on the gathering and electronic cross-checking of information from fuel traders and consumers, without the intervention of investigative staff, and the imposition of a single tax, eliminating the motive for tax evasion. This is the solution. No overpopulated agencies are needed, nor particular monitoring by staff, nor bureaucratic processes that require much paperwork. Instead of all that, one must calculate the cost of tax evasion for those who commit it. If tax brackets, e.g. in business profits, go down close to this figure, if there is sufficient electronic monitoring of data and sample checks on a few tax cases, but in depth, no one will evade taxes. They would have no reason to take such a high risk for little benefit. However, from the moment this tax mechanism is enforced in practice until its results emerge, there is a crucial period when the state’s revenues will shrink; and the fiscal situation may not be able to stand that. Therefore, the traditional mentality remains. SDOE, the financial crimes squad, has changed name and is now called Special Investigations Service (YEE). Transfers and the promotion of employees are decided in the hope that the new officers will be better, more honest and efficient than their predecessors. In reality, both the old and the new staff are offspring of the same system that produces circular routes and regulations and cannot bear fruit. What is needed is a change in mentality.