The problem with tax amnesties

18 August 2015

Andrew Hubbard 

Many of you will have gazed at the Rosetta Stone in the British Museum. Because it was inscribed in more than one language it was the key to unlocking the secrets of Egyptian Hieroglyphics. But have you ever wondered what message was written on the stone? It does not narrate a story of intrigue at the pharaoh’s palace or of scandals among the slaves. In fact it records the terms of the first tax amnesty in recorded history!

Lots of governments in the 2000 or so years since then have tried offering incentives to taxpayers to confess their tax sins and wipe the slate clean. Sometimes these amnesties have let people off some of the tax which was due, for example the Irish Amnesty in 1993 and the Belgian Amnesty in 2004. More often amnesties require people to pay all of the tax which is due but allow them to come forward without the risk of prosecution and with reduced penalties. Several US states have adopted this approach and the UK’s recent tax 'opportunities' (HMRC strongly object to the 'A' word being used) all basically follow this pattern.

Amnesties and the like are always controversial. Where they are successful they do bring in significant sums of money with minimal state intervention and they do also bring people into the system – once they are in, it is less likely that they will disappear. But they also cause great resentment. Why, honest taxpayers ask, should people who have cheated the system for years get a soft deal? There is also the problem that once one amnesty has been granted there will be another one on the way – so there is evidence that people have deliberately failed to come forward because they hope that the next amnesty will offer better terms.

In this week’s Tax Brief my colleague Karen discusses the phase out of the Liechtenstein Disclosure facility. There have been concerns, not least from the public accounts committee, that the LDF is too soft an option, particularly with its guarantee of non-prosecution. So it is not surprising that it is being withdrawn and that whatever new opportunity replaces it will be less generous. Of course the success of this move depends entirely on the public’s perception of HMRC’s intentions. There will be those who will still want to keep their heads down on the basis that in a few years’ time the mood will change again and there will be a more attractive offer on the table. In my view that would be a very high risk strategy: everything I have seen and heard leads me to conclude that life for tax evaders will only get tougher.


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