Major tax crackdown but should not the govt trim its own fat first

All governments facing financial difficulties will launch tax crackdown and such a cat, the Inland Revenue Board (IRB), and mouse, tax evaders, game is now fierily staged around the world.

The US government accused Swiss banks and other private banks of assisting the rich to evade paying tax and had later successfully obtained bank account details from Swiss banks. It is estimated that the US has collected more than US$4 billion of back taxes from oversea citizens after the crackdown.

Tax evasion is a "culture" of Greece. It is estimated that the government is owed €45 billion in back taxes and thus, Greece has also launched a tax crackdown against 500 rich citizens and businesses to save the country.

To alleviate the impacts of the 2008 financial crisis, world governments made huge expenditures and hollowed out the treasuries. Therefore, many countries are staging major tax crackdowns.

Tax evaders can face imprisonment in many countries. For example, tax evasion is a federal crime in the US and once convicted, tax evaders might face a punishment term of not exceeding five years or a fine of not exceeding US$250,000, or both.

According to the Hong Kong Inland Revenue Ordinance, a deliberate intention to evade paying tax or assist any other person to evade paying tax is considered as an offence with a maximum penalty of a fine of HK$50,000 and an amount equals to three times the amount of the back tax, and an imprisonment term of three years.

In Malaysia, the IRB has also got tougher in catching tax evaders. However, as we are having less influence in the international community, it is not easy to chase oversea tax evaders, and thus, the focus falls on the 1.7 million taxpayers in the country.

The IRB plans to enforce criminal action against stubborn tax evaders. Once convicted, they can face up to three years in jail or RM20,000 fine or 300% percent of the amount of the back tax, or both.

Among the 12.8 million working Malaysians, only 13% are paying tax and these taxpayers are indeed bearing a heavy burden. Although the Budget 2013 has reduced the individual income tax rate by 1%, the highest income tax rate is 26%, which is even higher than corporate tax.

What if some people have actually paid tax every year but are found guilty after making a careless mistake? How are they going to accept it?

Before taking criminal action against taxpayers, the authorities should first clarify what is meant by tax evasion. Tax evasion is referring to the deliberate intention of evading tax paying through deception, concealment, making false report or forged documents. Negligence or omission should not be classified as tax evasion.

Foreign governments have carefully handled tax evasion cases. For example, the US suffers an annual loss of US$300 billion due to tax evasion. Nearly 25 million cases were involved in civil penalties and only 1,112 people were sentenced in 2007. The move can avoid rebound from taxpayers and the punishment serves only as a means as the ultimate goal is to get back the taxes and achieve a deterrent effect.

The government should also understand that tax evasion does not equal to stealing the wealth of the country. Corruption and fraud practices are more serious compared to tax evasion and therefore, the government should not severely punish tax evaders while easily let go those who commit corruption.

Since the government is spending much and has failed to generate new income sources, in addition to step up the effort of chasing back taxes, it should also stop squandering, or the retrieved back taxes would not be enough to cover the expenditure.

It is a civic duty to pay tax. However, money must be spent carefully and wisely in the face of financial difficulties or taxpayers would find it hard to accept!

-Sin Chew Daily