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Tax AmnestyTax Amnesty

Union of Banks of ArmeniaUnion of Banks of ArmeniaArmenia 2007Armenia 2007

In different time periods different tax amnestied In different time periods different tax amnestied had been conducted around the worldhad been conducted around the world

Europe Europe ((Belgium, France, Ireland, Italy, SwitzerlandBelgium, France, Ireland, Italy, Switzerland))

Latin AmericaLatin America ( (Argentina, Bolivia, Brazil, Chile, Argentina, Bolivia, Brazil, Chile, ColumbiaColumbia))

AsiaAsia (India, Malaysia, Pakistan, Sri Lanka)(India, Malaysia, Pakistan, Sri Lanka)

PacificPacific (Australia, Indonesia, New Zealand, The (Australia, Indonesia, New Zealand, The Philippines)Philippines) and sometimes more than onceand sometimes more than once

From November 29, 1982 till the present day, a From November 29, 1982 till the present day, a considerable number of more than 60 amnesty considerable number of more than 60 amnesty programs have been conducted in US statesprograms have been conducted in US states

What does Tax Amnesty What does Tax Amnesty bring?bring?

Tax revenue in the short runTax revenue in the short runAccording to a 1998 According to a 1998 sourcesource

the the highesthighest amount of money collected amount of money collected through a tax amnesty did not exceed 2.6 % through a tax amnesty did not exceed 2.6 % of total tax revenuesof total tax revenues

the the lowestlowest revenue was equal to revenue was equal to 0,000,0077%% of of ttotal tax revenues otal tax revenues

Reduction of the administaration cost Reduction of the administaration cost No cost associated with audit and No cost associated with audit and enforcementenforcement

Repatriation of the capitalRepatriation of the capital

What does Tax Amnesty What does Tax Amnesty bring ?bring ? – cont’d – cont’d

Bring Bring the evaders «back to the route the evaders «back to the route of honesty»of honesty»

New taxpayers enter the system New taxpayers enter the system Increase in compliancesIncrease in compliances

InformationInformation about the taxpayers and about the taxpayers and their activitiestheir activitiesNote:Note:In general the state require the taxpayers In general the state require the taxpayers coming forward under coming forward under amnesty to amnesty to submit an application disclosing information submit an application disclosing information about operations.about operations.

Source: German Law Journal # 4Source: German Law Journal # 4

The important aspects of The important aspects of the amnestythe amnesty

DurationDurationOne-time-only grace periodOne-time-only grace period

2 months – 1 year2 months – 1 year It may be prolongedIt may be prolonged

Multiple amnesties Multiple amnesties in US from 1982 till present 60 amnesty in US from 1982 till present 60 amnesty

programs programs

Permanent standing amnestyPermanent standing amnesty in US 1919-1952in US 1919-1952 Similar programs in the tax system of Similar programs in the tax system of

CanadaCanada GermanyGermany The NetherlandsThe Netherlands

NorwayNorway SwedenSweden


Agents of the government for Agents of the government for implementing the amnestyimplementing the amnesty

BanksBanks Credit organizationsCredit organizations

With corresponding retail operations licenses


The eligibility of taxesThe eligibility of taxes In general it may refer to all taxesIn general it may refer to all taxes May vary from country to countryMay vary from country to country

GermanyGermany Income taxIncome tax Corporate taxCorporate tax Turnover taxTurnover tax Wealth taxWealth tax Trade taxTrade tax Inheritance taxInheritance tax Gift taxGift tax Tax deductionsTax deductions

State of MichiganState of MichiganTax Amnesty Tax Amnesty

ProgramProgram 20022002 WithholdingWithholding

Individual Income Individual Income TaxTax

Single Business TaxSingle Business Tax

Tobacco ProductsTobacco Products

EstateEstate

IntangiblesIntangibles

InheritanceInheritance SeveranceSeverance Motor Motor

FuelsFuels


The eligibility of The eligibility of participantsparticipantsThose that are not under the Those that are not under the

investigationinvestigation IndividualsIndividuals Firms/BusinessesFirms/Businesses

State of MichiganTax Amnesty Program 2002

Amnesty Tax Collection from Individual and Businesses

$18,8

$63,1

0

10

20

30

40

50

60

70

Individual Taxes Business Taxes

Mill

ion

s


PercentagePercentageVaries from country to countryVaries from country to country

India 30% (July-December, 1997)India 30% (July-December, 1997) Italy 2.5% (November 2001- May 2002)Italy 2.5% (November 2001- May 2002) South AfricaSouth Africa: different (August 2006- May 31, : different (August 2006- May 31,

2007)2007)

FromFrom ToTo LevyLevy

R - R 35,000 No levy payable

R 35,000 R 100,000 2% of the amount above R 35 000

R 100,000 R 250,000 R1 300 + 3% of the amount above R 100 000

R 250,000 R 500,000 R5 800 + 4% of the amount above R 250 000

R 500,000 and above R15 800 + 5% of the amount above R 500 000

R ( South African Rand )=ZAR1 US dollar =7.3 ZAR

ExampleExample

What does it give to the What does it give to the participant?participant?

May vary from country to countryMay vary from country to country It is an opportunity It is an opportunity for for thosethose who became who became

evaders by chance and want to correct their evaders by chance and want to correct their mistakemistake

No later investigation & penaltiesNo later investigation & penalties Reduce civil & criminal penaltiesReduce civil & criminal penalties Pay all previous taxes by decreased Pay all previous taxes by decreased

percentagepercentage Enter into installment payment agreementEnter into installment payment agreementHowever the reduced interest rate & penalty However the reduced interest rate & penalty

provisions are provisions are somewhat of a “carrot & stick” somewhat of a “carrot & stick” approach to tax collection.approach to tax collection.More often the amnesty is followed by increased More often the amnesty is followed by increased penalties and penalties and stricter enforcementstricter enforcement..


When to do the tax When to do the tax amnesty?amnesty?

When it is expected to do When it is expected to do changes in the tax lawchanges in the tax law increase in taxesincrease in taxes

The legislative power intends to The legislative power intends to end a period of timeend a period of time

Budget gaps/Revenue shortfallsBudget gaps/Revenue shortfalls

DisadvantagesDisadvantages It makes taxpayers aware of the tax evasionsIt makes taxpayers aware of the tax evasions It is a signal that tax evasion is not a big guiltIt is a signal that tax evasion is not a big guilt The generated revenue does not cover the The generated revenue does not cover the

expenses expenses It underlines the weakness of the tax It underlines the weakness of the tax

enforcement policyenforcement policy Decrease the receivables of the consequent yearDecrease the receivables of the consequent year

The amnesty in 2002 in Michigan decreased the The amnesty in 2002 in Michigan decreased the revenue of the FY 2003 by $18.4 millionrevenue of the FY 2003 by $18.4 million

May not attract the targeted hard-core evaderMay not attract the targeted hard-core evader Taxpayers will decrease the compliance and wait Taxpayers will decrease the compliance and wait

for a new amnestyfor a new amnesty

DisadvantagesDisadvantages – cont’d – cont’dAspects of equality between tax evaders and honest Aspects of equality between tax evaders and honest

taxpayerstaxpayers

In case of the amnesty the government refrains In case of the amnesty the government refrains form punishment form punishment

The taxable person gives up his/her anonymity and The taxable person gives up his/her anonymity and opens concealed fortunes or incomesopens concealed fortunes or incomes He/she will have to pay full taxes not only for the past but He/she will have to pay full taxes not only for the past but

future periods as wellfuture periods as well

The fiscal motives and the intention to lead people back to The fiscal motives and the intention to lead people back to

legality are reasons justifying the unequal treatment legality are reasons justifying the unequal treatment resulting from the tax amnesty.resulting from the tax amnesty.


Instead

However, the proponents of tax However, the proponents of tax amnesty note:amnesty note:

““Honest taxpayers generally do not Honest taxpayers generally do not appreciate risks and are not likely to appreciate risks and are not likely to change their habits.”change their habits.”

How guarantee How guarantee effectiveness?effectiveness?

Attract tax dodgers by wiping out past Attract tax dodgers by wiping out past burdens by decreasing or even burdens by decreasing or even eliminating back taxeseliminating back taxes

Increase post amnesty enforcementsIncrease post amnesty enforcements Increase penalty and audit ratesIncrease penalty and audit rates

Impose sanctions on those taxpayers who Impose sanctions on those taxpayers who had not taken the advantage of the benefits had not taken the advantage of the benefits provided by the amnestyprovided by the amnesty

Well publicize Well publicize Organize taxpayers’ education programsOrganize taxpayers’ education programs Improve customer service qualityImprove customer service quality

How guarantee How guarantee effectiveness?-cont’deffectiveness?-cont’d

Assure that it is one-time-only opportunityAssure that it is one-time-only opportunity Otherwise the effect will not be satisfyingOtherwise the effect will not be satisfying

Almost Twice as Many Tax Returns Filed Under 1986 Tax Amnesty Program

47,175

81,043

128,218

13,854

53,00166,855

0

40,000

80,000

120,000

160,000

New Taxpayers ExistingAssesments

Total

Num

ber

of R

etur

ns

1986 2002

State of MichiganState of MichiganTax Amnesty Tax Amnesty ProgramsPrograms

RussiaRussia 80% of transactions of large enterprises take place through a 80% of transactions of large enterprises take place through a

barter system, because there is no liquid cash available to barter system, because there is no liquid cash available to pay taxes.pay taxes.

Before the decision about implementing a tax Before the decision about implementing a tax amnesty programamnesty program

What to do, apply the tax amnesty program to persons already What to do, apply the tax amnesty program to persons already convicted under the Criminal Code Article "Tax Evasion“, or convicted under the Criminal Code Article "Tax Evasion“, or not? not?

The decision was madeThe decision was madeDuration: Duration: March 1, 2007- January 1, 2008March 1, 2007- January 1, 2008

Eligibility: Eligibility: Incomes received before January 1, 2006Incomes received before January 1, 2006

Can not apply: Can not apply: Individuals whose guilt to tax crimes has Individuals whose guilt to tax crimes has been been

established by the court of lawestablished by the court of law

Percentage: 13%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%.the extent of the sum on which he was paid 13%.

Tajikistan’s exampleTajikistan’s example April1-June10April1-June10, 2003, 2003Legalized Legalized $187 million$187 million Over 1 million rublesOver 1 million rubles 61,000 euro61,000 euroThose charged with capital-related crimes would get a Those charged with capital-related crimes would get a

clean slate.clean slate.For those who legalize their capital can getFor those who legalize their capital can get Examptions from state duties on Examptions from state duties on

PatentsPatents RegistrationRegistration LicensingLicensing

Exemptions on duties on orders forExemptions on duties on orders for HousingHousing ConstractionConstraction

Tajikistan’s exampleTajikistan’s example - - cont’dcont’d

Most "dirty" money in the country comes from the Most "dirty" money in the country comes from the transport of heroin and other illegal drugs, which transport of heroin and other illegal drugs, which yields $300-400 million a year high taxes yields $300-400 million a year high taxes citizens outside the drug trade hide their citizens outside the drug trade hide their moneymoney

A big source of unofficial currency is the labor A big source of unofficial currency is the labor market. Illegal emigrants send money from abroad market. Illegal emigrants send money from abroad (Russia) about $500 million; 60% in cash(Russia) about $500 million; 60% in cash

The threatThe threatlegalization of income from contraband of narcotics and legalization of income from contraband of narcotics and

corruption can become a powerful factor for growth of corruption can become a powerful factor for growth of organized crime, threatening to undermine the national organized crime, threatening to undermine the national securitysecurity of Tajikistan of Tajikistan

KazakhstanKazakhstan

2001:2001:

Duration:Duration: 1 month1 month

Repatriated:Repatriated: $480 million$480 million

ParticipatedParticipated: : almost 3,000 almost 3,000 individualsindividualsCash:Cash: 88% of all deposits 88% of all deposits were made in cash were made in cash Percentage: Percentage: 12% tax on legalized 12% tax on legalized fundsfunds

State of MichiganState of MichiganTax Amnesty ProgramTax Amnesty Program 20022002

DurationDuration 15 May – July 1, 200215 May – July 1, 2002

Program expensesProgram expenses $1.5 million + $22.9 million waived penalties$1.5 million + $22.9 million waived penalties

Net new revenueNet new revenue $30.2 million$30.2 million $7.4 million more than expected$7.4 million more than expectedThe amnesty resulted inThe amnesty resulted in

Increase in revenue of the FY 2002 by $ Increase in revenue of the FY 2002 by $ 48.7million48.7million

Decrease in revenue of the FY 2003 by $18.4 Decrease in revenue of the FY 2003 by $18.4 millionmillion

Increase in the tax base of the FY 2003Increase in the tax base of the FY 2003

State of MichiganState of MichiganTax Amnesty ProgramTax Amnesty Program 20022002

The The purposepurpose

Taxpayers Taxpayers get “fresh get “fresh start”start”

Generate Generate additional additional revenue for revenue for the Statethe State

Michigan's Tax Amnesty Nets $31.7 Million in New Revenue &

$50.2 Million from Prior Assessments

$0

$5

$10

$15

$20

$25

SBT Interest Income TaxAnnuals

Sales Tax Income TaxWithholding

Use Tax Other

mill

ions

New Money

Prior Assessments

$21.2

$20.5

$13.8 $13.5

$6.6$4.1

$2.1

The PhilippinesThe Philippines(1972-1987) – 18 Tax Amnesty Programs(1972-1987) – 18 Tax Amnesty ProgramsGenerated:Generated: P2.9 billion P2.9 billion

On average the money generated from tax amnesties On average the money generated from tax amnesties was equal to 1.6% of total tax revenueswas equal to 1.6% of total tax revenues

The PhilippinesThe Philippines

Tax Amnesties required mandatory Tax Amnesties required mandatory filling of SALN filling of SALN

Statement of AssetsStatement of Assets LiabilitiesLiabilities Networth (Total Asset – Total Liability )Networth (Total Asset – Total Liability )

The percentage of tax is equal to 3% The percentage of tax is equal to 3% of the declared Networthof the declared Networth

Union of Banks of ArmeniaUnion of Banks of ArmeniaArmenia 2007Armenia 2007