As the IMF has noted this week, the informal economies of the world - which are unrecorded and on which no tax is paid as a result - remain large even if the amounts as a proportion of GDP are thought to be falling slightly:
If 20% of Europe's income is unrecorded - and overall that might be true, although the figure for the UK may be half that - the biggest issue in tax justice is tax evasion and how to address it.
And it is not possible to say that this issue can be ignored because those doing the evasion are on low incomes. Tax is not about raising revenue. I argued that there were six reasons for tax in my book The Joy of Tax:
1) To ratify the value of the currency: this means that by demanding payment of tax in the currency it has to be used for transactions in a jurisdiction;
2) To reclaim the money the government has spent into the economy in fulfilment of its democratic mandate;
3) To redistribute income and wealth;
4) To reprice goods and services;
5) To raise democratic representation - people who pay tax vote;
6) To reorganise the economy i.e. fiscal policy.
None of these are about raising revenue. They are all about the delivery of social, economic and fiscal policy, which is what tax justice is about. In that case evasion really matters.
I know tax avoidance is important, but it's maybe 15% of tax evasion, at most. It's time tax justice campaigners took note.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
interesting
Should be taught to all trainee accountants for their first exam on tax!
I do think though that low income (unrecorded cash work?) earners tax evasion is not as vital as corporate and high earners.
Most low earners never have savings, they spend it all. The Inland Revenue no doubt benefits from it through the indirect taxation. The money is always part of the economy which is registered and be directly taxed there through direct taxation.
Does that seem a reasonable supposition?
Is there a figure on the total proportion of low income earners spending being indirectly taxed – vat, duties, etc? Most luxury disposable income being spent on gadgets, nicotine, alcohol and gambling.
I disagree
It creates unfair competition, especially amongst small businesses. and pushes people into sem-criminality. Both matter
And although in the UK the issue is not too bad – around 10% – that’s still very large sums unpaid when all is the top part of a person’s income
Richard, this reads like you are reinforcing the HMRC status quo where huge effort goes into tackling the little guy called evasion and treated as a crime while the rich guys and corporations use tax avoidance which is more complex granted but isn’t treated as criminal but a civil matter possibly just a simple misunderstanding while millions if not billions in tax go uncollected! Let’s keep attacking those on low incomes and let the others carry on doesn’t seem fair to me and this article in effect supports this by stating Tax Evasion is the big number to focus on as opposed to Tax Avoidance.
No, it’s about creating the smoking gun that makes people realise evasion does not pay
If you think 10% of the economy + tax on it is insignificant – and the resulting injustice, which is massive, acceptable, then you have a weird view of justice
Honest low paid taxpayers deserve justice too