Essay on Principle of Taxation

In tax evasion, taxpayers intentionally misrepresent their financial information to the tax authorities with the intention of defrauding the government. This misrepresentation will include false tax reports, like reporting fewer gains, profits or income than the actual amount generated or exaggerating deductions. Tax evasion is prevalent in the informal sector (Hashimzade, Myles, & TranNam, 2013). A common test of the degree of tax evasion, or tax gap, in other words, is the total income that is not reported, which is generated by finding the difference between the total income that should be reported and the amount that is reported to the tax authorities.

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Steps

Prosecuting more lawbreakers: Faster legal action is being executed by HMRC, against people who are not declaring their taxes (Sihag, 2009). There is also an improved allocation of resources with the aim of increasing prosecution of tax evaders in both the civil and criminal courts. Task forces have been locally formed with the aim of greatly aiding with both the identification of tax cheats and also deal with them by exercising civil and criminal powers. There is an increased prosecution of tax evaders with a further 200 criminal investigators having been recruited which has greatly assisted in increasing the number of tax evasion cases to 1165 in 2015 from the 165 prosecuted in 2010 (Hashimzade, Myles, & TranNam, 2013). Preventing evasion by big multinational corporations: In what is commonly referred to as BEPS, which is base erosion and profit shifting, some multinational corporations evade the payment of tax by transferring gains from the locality where the profit generating activities were carried out. A larger share of business is also being transacted online, changes which the international corporate tax standards have not been able to monitor for quite some time efficiently. This is a gap that needs to be sealed.

In 2013, during the finance ministers G20 meeting, George Osborne, Chancellor of the Exchequer, applauded OECDs (International Organisation for Economic Co-operation and Development) report that pointed to BEPS being a first step for tackling the shifting of profits by multinational corporations. Subsequently, in June 2013, the G8 leaders impressed on the OECD to come up with a guideline that would aid global corporations in reporting to the respective tax authorities where they generate profits and pay taxes worldwide (Sadiq, 2010). This would greatly empower tax authorities worldwide against tax evasion by these multinationals. Apart from these endeavors, the HMRC is also employing more people who will speed up its efforts to identify the tax evasion threats posed by large businesses. These efforts are geared at ensuring multinationals pay the tax due in addition to their full declaration of the profits generated in the United Kingdom.

Averting avoidance and evasion by wealthy persons: To identify and effectively deal with the evasion and avoidance of tax by the wealthy, there is a concerted d effort to expand the HMRCs Affluent Unit with an increased risk and intelligence staff numbers and approximately 100 extra investigators (Miller, and Oats, 2016). To also prevent inheritance tax evasion, through the use of offshore bank accounts, trusts or other channels, the number of specialized personal tax inspectors is also being increased whose particular role will be to focus on the tax intermediaries or agents involved in such practices.

Improving the capacity to identify offshore tax avoidance and evasion: The UK government works in close collaboration with other tax bodies in preventing offshore tax evasion. The government in June 2013, in conjunction with G8 member states, agreed to institute measures that allowed for the seamless information exchange among tax authorities (Besley, Jensen, & Persson, 2015). They also accepted to engage the OECD in this model development. This understanding came on the backdrop of a previous commitment that was made by Germany, Italy, France, UK and Spain to pilot this process. Since then, Norway, Mexico, and twelve other EU member states have joined this initiative. This list is also inclusive of the UK Crown Dependencies and Overseas Territories i.e. Jersey, Anguilla, British Virgin Islands, Bermuda, Guernsey, Isle of Man, Caicos Islands, Gibraltar, and Montserrat). The government has also established within the HMRC, a center of excellence, which aims to harmonize expertise in tackling offshore tax evasion. This center is charged with the responsibility of utilizing data in the best practice possible to identify tax evasion.

Using data and new technology: The government is investing more in its capability to utilize both data and advanced technology in the identification of evasion and fraud risks. 45 million has been pumped in these related activities which have resulted in the generation of a further 1.4 billion in tax revenue (Jones, and Rhoades-Catanach, 2009). To further allow HMRC to identify and investigate fraud swiftly, the analytical computer system dubbed CONNECT, has been improved.

Dealing with tax evasions schemes: Legislation that greatly reduces the room for tax evasion has been enacted. To prevent and deter abusive and artificial tax evasion schemes, the government has instituted the General Anti-Abuse Rule or the GAAR (Furnham, 2005). Tax advisers who tend aggressive tax evasion schemes have also been targeted. The UK government has also made it more difficult for the marketing of abusive tax schemes by the introduction of important penalty powers and information disclosure. The government has also created settlement opportunities in its collective bid to encourage the settlement of taxes by those who use avoidance schemes. For those who fail to settle, litigation is initiated. The government is also keen in swaying the behavior of taxpayers by making better use of anti-avoidance channels. Taxpayers are also becoming increasingly aware, through quality information, of the probable risks associated with evasion.

Conclusion

To sum up, the paper has provided information on the steps the UK government can take to mitigate against tax evasion. Most business and UK individuals make an effort to pay due to tax. All the same, there is a small number that does not pay. Such an arrangement unfairly burdens the honest majority and places a strain on the efficient delivery of public services with the result of denying the reasonable access to the same. People and businesses need to stop defrauding the tax system and enable the government to collect what is owed.

References

Besley, T. J., Jensen, A., & Persson, T., 2015. Norms, Enforcement, and Tax Evasion.

Coleman, C., Hanegbi, R., Hart, G., Jogarajan, S., Krever, R., McLaren, J., Obst, W. and Sadiq, K., 2010. Principles of taxation law. THE AUSTRALIAN TAFE TEACHER.

Furnham, A., 2005. Understanding the meaning of tax: Young peoples knowledge of the principles of taxation. The journal of socio-economics, 34(5), pp.703-713.

Hashimzade, N., Myles, G. D., & TranNam, B., 2013. Applications of behavioural economics to tax evasion. Journal of Economic Surveys, 27(5), 941-977.

Jones, S. and Rhoades-Catanach, S., 2009. Principles of Taxation for Business and Investment Planning: 2010 Edition. Boston: McGraw-Hill Irwin.

Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.

Sihag, B.S., 2009. Kautilya on principles of taxation. Humanomics, 25(1), pp.55-67.