Sometimes I wonder if people are aware of the effects of non-compliance. Tax compliance is defined by the Organization for Economic Co-operation and Development (OECD) as “[the] degree to which a taxpayer complies (or fails to comply) with the tax rules of his country, for example by declaring income, filing a return, and paying the tax due in a timely manner.” Are you aware of the effects of low compliance?
It all boils down to the fact that non-compliance is extremely expensive. One of my favorite slogans is: “If you think (fixing) tax compliance is expensive, try non-compliance”. It is said that tax evasion costs governments approximately $200 billion per year (Source: The hidden wealth of nations). According to the Inter-American Development Bank the average tax evasion in Latin America and the Caribbean is between 25-50% (read more about it here). In an attempt to bridge the budget deficits, governments often raise taxes and implement (unproductive) budget cuts. I do not believe this is the answer. Lowering tax evasion and increasing compliance is! It can be done, it is low hanging fruit! Tax evasion is not only routed via tax havens, it is everywhere, on shore and off shore.
According to the UK government, an astonishing 2 billion British pounds have been tracked down from offshore tax dodgers since 2010 as compliance has become a high priority on the agenda of the government. If I take an example closer to home, the Tax Administration of the Dutch Caribbean BES islands (Bonaire, Sint Eustatius and Saba) experienced 26% more revenue than forecasted during the first year after implementation of their new IT system. This astonishing increase was the result of an increased compliance which was also attributed to the new system. Subsequently, the tax administration decided (and could afford!) to ease the tax burden by decreasing one of the tax types by 2%.
If the Panama Papers have emphasized anything it is this: while tax compliance is a hot item and it has the attention on a global level now more than ever – take for example the OECD’s Global Forum on Transparency and Exchange of Information and international tax compliance agreements such as FATCA and CRS (read more about it here) – it is evident that there is still a lot of work to be done. Government officials and tax administrators should advocate for compliance to be high on the agenda of every government, as the realization sinks in that compliance is an indisputable element of a successful and vibrant economy and community and that the price to be paid for non-compliance is high.