A vicious circle

Tax audits carried out by the Special Inspection Service (SIS), which replaced the Finance Ministry’s Financial Crimes Squad (SDOE) force, show that tax evasion has indeed become a national pastime. Out of a total 23,000 audits, 8,500 firms were found to be evading taxes of some kind. In certain sectors, almost half of the businesses were found to be violating the tax code – 53 percent of inspections at automobile repair yards, half of those at travel and transport agencies and 44 percent at construction firms. Tax evasion is not an aberration but an established mentality. The extent of the problem is not only evident from the official audits. Even taking into consideration the excessive zeal of some inspectors, the evidence from VAT payment records leaves no room for doubt. After all, it is hard to believe that while retail sales have risen by 8.5 percent, VAT revenue from the sector has risen by only 0.2 percent. The only explanation is that many people find it appropriate to charge their customers VAT but not pass it on to the state. This newspaper has often emphasized the consequences of this phenomenon. The state’s coffers are losing revenue, and it is trying to compensate by imposing new taxes on those who cannot avoid paying them. This unequally distributes the burden among taxpayers and discourages economic activity. Tax evasion sets in motion a vicious circle of inequality and additional burdens. The major issue here is the question of what is to be done. The most obvious initial response is to make an example of the violators – or the true perpetrators of tax evasion and not those who have infringed some minor regulation. Secondly, incentives should be provided for people to ask for receipts, so that businesses who do not pass on VAT payments are immediately traceable. So far, neither of the above courses of action has been taken. Firms owing VAT payments continue to do business as if nothing were amiss, and even when finally discovered, nothing happens. The state might prosecute, but finds no money to claim. This is a crime committed on paper, but in practice it shows a lack of accountability. This seems to be the prevailing impression, one which must be changed. Audits should focus on the few important areas, and cross-referencing should be emphasized. Violators should be found promptly and should be made to pay, but not when already bankrupt.

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