Black Wednesday

They called April 6th “Black Wednesday” in the UK. Well, I heard someone say that on the BBC. It’s because it was the start of the new tax year, and since the government maxed out the credit card, the payments are going up. There’s going to be some pressure to collect to more tax, because there’s a limit to how much you can put the rates up before avoidance (and emigration) reduces the total amount collected. I wonder if we will soon be going down the Greek route.

The Greek government announced Thursday it is shutting down bars and nightclubs… that fail to offer receipts. So far, six bars and clubs have been shut down as par of a broader sweep where two-thirds of all inspected businesses were fined. The absence of receipts allows businesses to avoid value added tax, or consumption tax, the Ministry of Finance said in a press release.

[From Euro Debt Crisis – Cash-Strapped Greece Cracks Down on Fun – CNBC]

Now this could be good for the e-payments industry, because the easiest away to avoid receipts and therefore evade tax is to pay in cash. Here, in the birthplace of income tax, the government are apparently going to have something of a crackdown on tax evasion.

HMRC has targeted so-called ‘ash cash’ or payments to doctors for signing death certificates before bodies can be cremated and also undeclared cash payments to dentists.

[From HMRC targets middle class tax evaders – Telegraph Blogs]

This seems on the margin to me: I shouldn’t think the amount of tax being evaded by doctors writing death certificates will amount to one payoff of a local government official and I have to say that none of my dentists has ever asked me for a cash payment for anything.

It could even be argued that agreeing to pay your builder in cash might be seen as a conspiracy to defraud the Revenue

[From HMRC targets middle class tax evaders – Telegraph Blogs]

Now you’re talking! Agreeing to pay your builder in cash is precisely engaging in a conspiracy to evade tax, and people who do it should be prosecuted. If they paid their share, mine wouldn’t be so much.

And it’s not just that carrying around cash is inconvenient and time consuming. These days, one of its main functions is to finance the black economy: drug deals, counterfeiting, under-the-table employment and other nefarious activities. Because cash is anonymous, people can easily opt out of the taxable economy – leaving the rest of us to pick up the tab for their use of public services.

[From I’m dreaming of a cashless Christmas – Telegraph]

Getting rid of cash won’t eradicate tax evasion, but it will make it more difficult, and hopefully more expensive, thus shifting otherwise black commerce back into the formal economy. And since the scale of tax evasion in Europe is so colossal, small improvements will deliver significant sums to the treasuries. I couldn’t find a reasonable estimate for this in the most recent tax year, but I did find this estimate for VAT alone.

The current collection model brings with it a VAT Gap due to e.g. VAT fraud, insolvencies, mistakes by the taxable persons in the VAT return and VAT avoidance schemes. Desk research shows that the VAT Gap for 2009 can be cautiously estimated at 6,9% of GDP and 12% of total VAT liability in the EU-27. This means that, in the EU-27, a total of EUR 118,8 billion has according to those estimates not been collected by the tax authorities in 2009.

[From 118,8bn euros lost in 2009]

Let’s say that 20 billion of this is in the UK, and that getting rid of cash would cut it by a quarter. That’s an instant five billion bonus to the exchequer. I look forward to my rebate.

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