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Tax Amnesty Union of Banks of Armenia Armenia 2007.

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Presentation on theme: "Tax Amnesty Union of Banks of Armenia Armenia 2007."— Presentation transcript:

1 Tax Amnesty Union of Banks of Armenia Armenia 2007

2 In different time periods different tax amnestied had been conducted around the world In different time periods different tax amnestied had been conducted around the world Europe ( Belgium, France, Ireland, Italy, Switzerland ) Latin America ( Argentina, Bolivia, Brazil, Chile, Columbia ) Asia (India, Malaysia, Pakistan, Sri Lanka) Pacific (Australia, Indonesia, New Zealand, The Philippines) and sometimes more than once and sometimes more than once From November 29, 1982 till the present day, a considerable number of more than 60 amnesty programs have been conducted in US states From November 29, 1982 till the present day, a considerable number of more than 60 amnesty programs have been conducted in US states

3 What does Tax Amnesty bring? Tax revenue in the short run Tax revenue in the short run According to a 1998 source the highest amount of money collected through a tax amnesty did not exceed 2.6 % of total tax revenues the highest amount of money collected through a tax amnesty did not exceed 2.6 % of total tax revenues the lowest revenue was equal to 0,007% of total tax revenues the lowest revenue was equal to 0,007% of total tax revenues Reduction of the administaration cost Reduction of the administaration cost No cost associated with audit and enforcement No cost associated with audit and enforcement Repatriation of the capital Repatriation of the capital

4 What does Tax Amnesty bring ? – contd Bring the evaders «back to the route of honesty» Bring the evaders «back to the route of honesty» New taxpayers enter the system New taxpayers enter the system Increase in compliances Increase in compliances Information about the taxpayers and their activities Information about the taxpayers and their activities Note: In general the state require the taxpayers coming forward under amnesty to submit an application disclosing information about operations. Source: German Law Journal # 4

5 The important aspects of the amnesty Duration One-time-only grace period 2 months – 1 year 2 months – 1 year It may be prolonged It may be prolonged Multiple amnesties in US from 1982 till present 60 amnesty programs in US from 1982 till present 60 amnesty programs Permanent standing amnesty in US in US Similar programs in the tax system of Similar programs in the tax system of Canada Canada Germany Germany The Netherlands The Netherlands Norway Norway Sweden Sweden

6 The important aspects of the amnesty Agents of the government for implementing the amnesty Banks Banks Credit organizations Credit organizations With corresponding retail operations licenses

7 The important aspects of the amnesty The eligibility of taxes In general it may refer to all taxes In general it may refer to all taxes May vary from country to country May vary from country to countryGermany Income tax Income tax Corporate tax Corporate tax Turnover tax Turnover tax Wealth tax Wealth tax Trade tax Trade tax Inheritance tax Inheritance tax Gift tax Gift tax Tax deductions Tax deductions State of Michigan Tax Amnesty Program 2002 Withholding Withholding Individual Income Tax Individual Income Tax Single Business Tax Single Business Tax Tobacco Products Tobacco Products Estate Estate Intangibles Intangibles Inheritance Inheritance Severance Severance Motor Fuels Motor Fuels

8 The important aspects of the amnesty The eligibility of participants Those that are not under the investigation Individuals Individuals Firms/Businesses Firms/Businesses State of Michigan Tax Amnesty Program 2002 Amnesty Tax Collection from Individual and Businesses $18,8 $63, Individual TaxesBusiness Taxes Millions

9 The important aspects of the amnesty Percentage Varies from country to country India 30% (July-December, 1997) India 30% (July-December, 1997) Italy 2.5% (November May 2002) Italy 2.5% (November May 2002) South Africa: different (August May 31, 2007) South Africa: different (August May 31, 2007)FromToLevy R -R 35,000No levy payable R 35,000R 100,0002% of the amount above R R 100,000R 250,000R % of the amount above R R 250,000R 500,000R % of the amount above R R 500,000and aboveR % of the amount above R R ( South African Rand )=ZAR 1 US dollar =7.3 ZAR Example

10 What does it give to the participant? May vary from country to country It is an opportunity for those who became evaders by chance and want to correct their mistake It is an opportunity for those who became evaders by chance and want to correct their mistake No later investigation & penalties No later investigation & penalties Reduce civil & criminal penalties Reduce civil & criminal penalties Pay all previous taxes by decreased percentage Pay all previous taxes by decreased percentage Enter into installment payment agreement Enter into installment payment agreement However the reduced interest rate & penalty provisions are somewhat of a carrot & stick approach to tax collection. More often the amnesty is followed by increased penalties and stricter enforcement. Source: German Law Journal # 4

11 When to do the tax amnesty? When it is expected to do When it is expected to do changes in the tax law changes in the tax law increase in taxes increase in taxes The legislative power intends to end a period of time The legislative power intends to end a period of time Budget gaps/Revenue shortfalls Budget gaps/Revenue shortfalls

12 Disadvantages It makes taxpayers aware of the tax evasions It makes taxpayers aware of the tax evasions It is a signal that tax evasion is not a big guilt It is a signal that tax evasion is not a big guilt The generated revenue does not cover the expenses The generated revenue does not cover the expenses It underlines the weakness of the tax enforcement policy It underlines the weakness of the tax enforcement policy Decrease the receivables of the consequent year Decrease the receivables of the consequent year The amnesty in 2002 in Michigan decreased the revenue of the FY 2003 by $18.4 million The amnesty in 2002 in Michigan decreased the revenue of the FY 2003 by $18.4 million May not attract the targeted hard-core evader May not attract the targeted hard-core evader Taxpayers will decrease the compliance and wait for a new amnesty Taxpayers will decrease the compliance and wait for a new amnesty

13 Disadvantages – contd Disadvantages – contd Aspects of equality between tax evaders and honest taxpayers In case of the amnesty the government refrains form punishment In case of the amnesty the government refrains form punishment The taxable person gives up his/her anonymity and opens concealed fortunes or incomes The taxable person gives up his/her anonymity and opens concealed fortunes or incomes He/she will have to pay full taxes not only for the past but future periods as well He/she will have to pay full taxes not only for the past but future periods as well The fiscal motives and the intention to lead people back to legality are reasons justifying the unequal treatment resulting from the tax amnesty. Source: German Law Journal # 4 Instead

14 However, the proponents of tax amnesty note: Honest taxpayers generally do not appreciate risks and are not likely to change their habits.

15 How guarantee effectiveness? Attract tax dodgers by wiping out past burdens by decreasing or even eliminating back taxes Attract tax dodgers by wiping out past burdens by decreasing or even eliminating back taxes Increase post amnesty enforcements Increase post amnesty enforcements Increase penalty and audit rates Increase penalty and audit rates Impose sanctions on those taxpayers who had not taken the advantage of the benefits provided by the amnesty Impose sanctions on those taxpayers who had not taken the advantage of the benefits provided by the amnesty Well publicize Well publicize Organize taxpayers education programs Organize taxpayers education programs Improve customer service quality Improve customer service quality

16 How guarantee effectiveness?-contd Assure that it is one-time-only opportunity Assure that it is one-time-only opportunity Otherwise the effect will not be satisfying Otherwise the effect will not be satisfying State of Michigan Tax Amnesty Programs

17 Russia 80% of transactions of large enterprises take place through a barter system, because there is no liquid cash available to pay taxes. 80% of transactions of large enterprises take place through a barter system, because there is no liquid cash available to pay taxes. Before the decision about implementing a tax amnesty program What to do, apply the tax amnesty program to persons already convicted under the Criminal Code Article "Tax Evasion, or not? The decision was made Duration: March 1, January 1, 2008 Eligibility: Incomes received before January 1, 2006 Can not apply: Individuals whose guilt to tax crimes has been established by the court of law Percentage: 13% The taxpayer will be protected from fiscal bodies claims to The taxpayer will be protected from fiscal bodies claims to the extent of the sum on which he was paid 13%.

18 Tajikistans example April1-June10, 2003 April1-June10, 2003Legalized $187 million $187 million Over 1 million rubles Over 1 million rubles 61,000 euro 61,000 euro Those charged with capital-related crimes would get a clean slate. For those who legalize their capital can get Examptions from state duties on Examptions from state duties on Patents Patents Registration Registration Licensing Licensing Exemptions on duties on orders for Exemptions on duties on orders for Housing Housing Constraction Constraction

19 Tajikistans example - contd Most "dirty" money in the country comes from the transport of heroin and other illegal drugs, which yields $ million a year high taxes citizens outside the drug trade hide their money Most "dirty" money in the country comes from the transport of heroin and other illegal drugs, which yields $ million a year high taxes citizens outside the drug trade hide their money A big source of unofficial currency is the labor market. Illegal emigrants send money from abroad (Russia) about $500 million; 60% in cash A big source of unofficial currency is the labor market. Illegal emigrants send money from abroad (Russia) about $500 million; 60% in cash The threat legalization of income from contraband of narcotics and corruption can become a powerful factor for growth of organized crime, threatening to undermine the national security of Tajikistan

20 Kazakhstan 2001:Duration: 1 month 1 monthRepatriated: $480 million $480 million Participated : almost 3,000 individuals almost 3,000 individualsCash: 88% of all deposits were made in cash 88% of all deposits were made in cashPercentage: 12% tax on legalized funds 12% tax on legalized funds

21 State of Michigan Tax Amnesty Program 2002 Duration 15 May – July 1, May – July 1, 2002 Program expenses $1.5 million + $22.9 million waived penalties $1.5 million + $22.9 million waived penalties Net new revenue $30.2 million $30.2 million $7.4 million more than expected $7.4 million more than expected The amnesty resulted in Increase in revenue of the FY 2002 by $ 48.7million Increase in revenue of the FY 2002 by $ 48.7million Decrease in revenue of the FY 2003 by $18.4 million Decrease in revenue of the FY 2003 by $18.4 million Increase in the tax base of the FY 2003 Increase in the tax base of the FY 2003

22 State of Michigan Tax Amnesty Program 2002 The purpose Taxpayers get fresh start Taxpayers get fresh start Generate additional revenue for the State Generate additional revenue for the State $21.2 $20.5 $13.8 $13.5 $6.6 $4.1 $2.1

23 The Philippines ( ) – 18 Tax Amnesty Programs Generated: P2.9 billion On average the money generated from tax amnesties was equal to 1.6% of total tax revenues

24 The Philippines Tax Amnesties required mandatory filling of SALN Statement of Assets Statement of Assets Liabilities Liabilities Networth (Total Asset – Total Liability ) Networth (Total Asset – Total Liability ) The percentage of tax is equal to 3% of the declared Networth The percentage of tax is equal to 3% of the declared Networth

25 Union of Banks of Armenia Armenia 2007


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