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Tax Evasion Archives - Anti Financial Crimes Magazine https://afcmagazine.com Accredited Financial Counselor Sat, 01 Feb 2020 02:36:53 +0000 en-US hourly 1 https://wordpress.org/?v=6.0.1 Tax Revenue Growing Issues https://afcmagazine.com/anti-corruption/tax-revenue-growing-issues/ https://afcmagazine.com/anti-corruption/tax-revenue-growing-issues/#comments Fri, 31 Jan 2020 08:55:13 +0000 https://afcmagazine.com/?p=884

  Tax revenue is a strong indicator of a country’s economic growth. Tax revenue is increasingly becoming a global concern. The economic prosperity of developing countries is affected due to factors such as informal sectors and political or legislative corruption. In developed countries, the elite evade taxes by means of offshore accounts, as the recent […]

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Tax revenue is a strong indicator of a country’s economic growth. Tax revenue is increasingly becoming a global concern. The economic prosperity of developing countries is affected due to factors such as informal sectors and political or legislative corruption.

In developed countries, the elite evade taxes by means of offshore accounts, as the recent scandalous Panama Papers proved, digital currencies and black markets. Tax evasion through illegal practices, including drug trade, trafficking and smuggling are typical of both developed countries (DCs) and less developed countries (LDCs).

In 2015, OECD estimates showed that loss of global income tax was around $240 billion, the effect of which trickled down to the developing countries.

Developing Countries

Studies show that the poor populations of developing countries are at the losing end of tax evasion. Since people work mostly in the informal sector, it is difficult for governments to acquire tax revenue. The governments rely mostly on commercial transactions and foreign direct investment for revenues.

A report by ActionAidrevealed that more than half of the investment in developing countries was generated from tax havens. Tax evaders get away due to gaps in information exchange between countries.

Tax Havens

The tax havens of the most prosperous nations entrap citizens of developing countries in a vicious cycle of poverty and hunger, even though LDCs have the capacity to counter poverty via public funds. By routing tax, both DCs and LDCs lose billions in tax revenue.

A case study showed that India forewent $2.2 billion in tax revenue, which was sufficient to subsidize snack for public school students per year, due to an offshore transaction.

A report by UN Economic Commissionshowed that African governments lose nearly $60 billion to tax evasion via illegal capital flows. Loss of tax revenue affects economic prosperity and sovereignty of poor nations.

Countries then rely on foreign aid and may be exploited for resources at the cost of citizens’ welfare and environment.

Low Level Voluntary Tax Compliance

Developing countries lack tax morale or willingness to paytaxes due to several factors. Citizens expect good-quality services and benefits for paying taxes. However, most of the revenue is lost due to administrative corruption and is invested abroad to transferred to personal accounts.

Citizens are unwilling to pay taxes when the government fails to provide them with public goods and serves adequately.

Secondly, high tax rates may induce tax avoidance or evasion. When tax burden increases, an individual’s disposable income falls. Taxpayers may perceive it as unfair and take advantage of loopholes to evade payment.

Thirdly, lack of accountability in tax institutions instills public distrust towards the government, which increases willingness to evade taxes.

Due to corrupt practices at institutional levels, citizens cannot determine whether their expenditures are being spent on public welfare or private monetary gains.

Informal sector

The informal sector in LDCs can be used synonymously to represent black markets, shadow or hidden underworld economies. The hidden economies comprise of all income-earning activities that are not legally regulated.

Since incomes from informal sector are not legally contracted, workers avoid paying taxes. Due to the size and scale of the informal sector in LDCs, there is no scope for growth and development from shadow economies.

The informal sector distorts a country’s unemployment, inflation and GDP growth rate. The state incurs budget deficits due to loss in revenue, causing further increase in tax rates.

The informal sector widen technological gap between the affected country and other countries. There is low productivity in informal sector and people earn low incomes. Workers of the informal sector are worse off than workers of the formal sector due to lack of public security, benefits and working conditions.

Citizens are provided with false information with respect to growth statistics. Informal sector workers have unfair advantage of exclusion from tax payments and social security contributions.

Statistics would provide misleading information about the state and public policies. This increases incentive for corruption in government offices.

Developed countries

 

Panama Papers and Paradise Papers

The papers revealed high-profile individuals across the world who transferred their incomes to offshore accounts or invested in property abroad. The law-firm Mossack Fonesca assisted the wealthy elite around the world to launder money and evade taxes.

The leaked documents showed evidence of notable political leaders and celebrities. Iceland’s Prime Minister Sigmund David resigned after his name showed up in the papers.

Paradise papers exposed more tax evasion schemes of high-ranking individuals and corporations. Names of over 100 prominent politicians from 50 countries appeared in the documents.

The documents expose how the wealthy elite used tax havens to hide their money from tax authorities.

Tax haven Giants

A new report by Tax Justice Network ranked Switzerland and United States as tax haven giants. The wealthy elite used US as loot wealth and avoid taxes. The US is currently home to 22 percent of the global offshore market.

The US financial giants hold secret information, which poor countries do not have access to. Due to loopholes in the financial operations, the elite of foreign nations easily take advantage to gain wealth. The secret information is manipulated to extract resources and withdraw wealth from developing nations.

There is a huge global industry of tax evasion that assists the elite in hoarding wealth illegally.

Cryptocurrencies

The recent scandals show that high-ranking individuals used e-commerce currencies to generate wealth and avoid taxes. Online transactions are handled anonymously and without  legislative regulations. Digital currencies operate without centralized authorities.

The nature of online transactions remains anonymous, which gives leverage to individuals for unlawful ways to increase wealth and evade taxes. Investments in cryptocurrency have increased doe to convenience of storing, transferring and handling transactions.

Buyers and seller don’t need to disclose personal information. There are no tangible resources required for operation or distributions because they could all be done online.

The IRS uncovered US wealth that had been hoarded in Swiss banks. The investigation shows that tax evaders used cryptocurrencies to hide wealth. Moreover, digital currencies are being used to cheat tax authorities and draw in money-launderers and other criminals.

Cryptocurrencies can be used in the same manner as foreign bank accounts to avoid taxes.

Since tax evasion is a development problem, countries need to collaborate on exchange of information and build capacity. Developing nations need resources to facilitate diplomatic dialogues with multinational corporations and foreign nations.

Governments should improve partnerships between regional tax organizations. Developing countries need to be helped to recognize their national capacity and improve resource mobilization.

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Scandals of Global-Panama Paper https://afcmagazine.com/anti-corruption/scandals-of-global-panama-paper/ https://afcmagazine.com/anti-corruption/scandals-of-global-panama-paper/#comments Sun, 02 Sep 2018 09:37:19 +0000 https://afcmagazine.com/?p=741

The campaign against tax evasion can only be fought on a global level. There also needs to be intense scrutiny about the ease with which financial capital can move around the world.

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Many scandals of global scale were unearthed in the year 2016, from bribery at FIFA to child abuse in the church. However, the story to have the biggest impact on the corporations, individuals as well as governments of many countries across the world was the Panama Papers.

These papers were a collection of more than 11 million legal documents that have information spanning over a period of about four decades. Panama papers were revelatory as they had detailed information regarding the ownership of more than 215,000 offshore businesses, their shareholders and directors.The names of these owners and shareholders included political leaders, parliamentarians, top bureaucrats, military personnel and even famous footballers and other celebrities.

The documents were from Mossack Fonseca, which was a law firm based in Panama, and it operated for its global clientele which included wealthy and elite and helped them to evade taxes and circumvent international sanctions. An anonymous source leaked the papers to the German newspaper Süddeutsche Zeitung back in August 2015, which then forwarded it to the U.S.-based nonprofit International Consortium of Investigative Journalists (ICIJ). Hundreds of journalists in more than 80 countries were subsequently provided with the documents, leading to the news breaking out in early April 2016.

Financial corruption has been going on for as long as businesses have existed; however, what’s different in the Panama Papers scandal is the scale of the operation; the revelation that elite and wealthy from all societies are involved in the scam and in many cases law makers and implementers, who were supposed to ensure that citizens of their countries dutifully follow the taxation and other legal orders, were also the ones hording money in offshore companies.

Furthermore, this was not an amateur operation involving smugglers who carry suitcases full of money into Switzerland. Among those who have acted as middlemen for the elite we find some of the largest banks in the world, such as HSBC, UBS, Societe Generale and Credit Suisse.

The involvement of banks and financial institutions to help the elite siphon money from their economies and channel them into private accounts has given a rise to the already existing concern that the international economic system of Capitalism could go through a tipping point, especially after the many knocks it had to face in the recent financial crisis of 2008. Capitalism’s pathway could be leading towards the situation of a crises caused by increasing inequality in the society and fragility of the economies of developing as well as developed nations.

The Panama Papers could help us understand the reasons behind the inefficiencies and failures of the economic system. Through the Panama scandal we clearly see that through loopholes in domestic taxation rules and disparities in international tax regimes, globalization has allowed individuals and corporations “the 1 percents” to freely move their capital and assets to tax havens while the majority of the population, mainly working class folks from third-world countries “the 99 percent”, are not allowed the same freedom.

Globalization, which was supposed to be about the freedom of movement for people, goods, and capital, turned out to be working mainly for rich people and large corporations, while the remaining populations is working as subjects for the elites. The result is global tax evasion, the off-shoring of labor, and elitethat flies 35,000 feet over the problems of nation states and the taxpayers within them.

Looking back at the post financial crises situation in the lateryears of 2000s, many countries across the world, and much surprisingly the North American and Western European nations which are often regarded as “rich and developed”, erupted with protests aiming to end the extreme inequalities. Many of these protests were termed under the umbrella of “Occupy Movement”, where protestors, often young and college graduated, took to streets. The phrase “1 percent vs. 99 percent” was popularizes in these occupy protest and were heard around the major capitalist cities of New York, London and Madrid including many others.

And to understand the relation better between the financial crises and the Panama Papers and the underlying economic structure which has enabled this polarization in the first place, we can take a look at the most high profile case of Panama saga, the Ex Prime Minister of Iceland, Sigmundur Davíð Gunnlaugsson. In the papers he was revealed to have owned a shell company, Wintris Inc. with his wife since 2007 on the tax haven of the British Virgin Islands, where he invested millions of dollars to avoid paying taxes.

The company held bonds worth millions of dollars in Iceland’s three biggest banks during the crisis of 2008. Although he initially rejected any claims of him owning Wintris he eventually had to resign following demonstrations from a large part of Icelandic population. Only through Panama Papers we came to know that the public money that was used to bail out banks after the crises was going into the private hands of politicians such as Mr. Gunnlaugsson and other influential policy makers in other countries.

What future does the international political and economic field holds? The popular sentiment is headed towards a re-evaluation of how the free-market system works and how it doesn’t work. The debate over free trade is also to be made part of the re-evaluation. The campaign against tax evasion can only be fought on a global level. There also needs to be intense scrutiny about the ease with which financial capital can move around the world. Otherwise we could well be on our way to Capitals next big crisis.

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How Large Corporations Avoid Taxes https://afcmagazine.com/anti-corruption/how-large-corporations-avoid-taxes/ https://afcmagazine.com/anti-corruption/how-large-corporations-avoid-taxes/#comments Wed, 02 May 2018 05:12:27 +0000 https://afcmagazine.com/?p=445

How Large Corporations Avoid Taxes, the corporate income tax rate in the US is 35%. However, you’d be mistaken if you assumed that all of the corporations pay this rate of income tax. Regardless of how unfair it might be for the smaller businesses, the fact of the matter is that large corporations only pay […]

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How Large Corporations Avoid Taxes, the corporate income tax rate in the US is 35%. However, you’d be mistaken if you assumed that all of the corporations pay this rate of income tax. Regardless of how unfair it might be for the smaller businesses, the fact of the matter is that large corporations only pay 6-7% of their profits in effective taxes. How? Well, here are some of the strategies…

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Why Developing Countries Need to Increase Tax Revenues https://afcmagazine.com/investigations-reports/why-developing-countries-need-to-increase-tax-revenues/ https://afcmagazine.com/investigations-reports/why-developing-countries-need-to-increase-tax-revenues/#respond Wed, 02 May 2018 05:12:27 +0000 https://afcmagazine.com/?p=473

Why Developing Countries Need to Increase Tax Revenues; The primary purpose of taxation is to raise the capital required to support a country’s expenditure. When you consider how tax impacts the individuals of a country directly, it is apparent that it is of great significance to countries, especially the ones that are still in their […]

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Why Developing Countries Need to Increase Tax Revenues; The primary purpose of taxation is to raise the capital required to support a country’s expenditure. When you consider how tax impacts the individuals of a country directly, it is apparent that it is of great significance to countries, especially the ones that are still in their development stage. Having that been said, here are some of the reasons why governments not…

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