Chapter

APPENDIX 2. Case Studies: Characteristics of Tax Amnesty Programs

Author(s):
Eric Le Borgne, and Katherine Baer
Published Date:
July 2008
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KentuckyMichiganIreland
Date of the amnesty2002 (second one; first was in 1988)2002 (second one; first was in 1986)198819931999 onward
Goal(s) of the tax amnestyIncrease revenue during economic slowdown and balanced budget requirement; broaden the tax baseIncrease revenue during economic slowdown and balanced budget requirement; broaden the tax baseClear the stock of tax arrears to start anew and restore credibility to the tax administrationTarget tax evaded through the use of domestic banking secrecyTarget tax evaded through the use of offshore bank accounts
Tax amnesty design
Taxpayer eligible
Unregistered taxpayersYesYesYesYesYes
NonfilersYesYesYesYesYes
Identified delinquenttaxpayers1Yes (except taxpayers under criminal investigation)Yes (except taxpayers under criminal investigation)YesNoYes
Evaders2YesYesYesYesYes3
Taxes eligible
All taxesYes (from 1987 to 2001)Yes (all taxes up to 2001)[Yes][Yes][Yes]
Other
Participation incentives/forgiveness
InterestYes (100% waived)NoYesYesNo
PenaltiesYesYesYesYesNo6
Criminal and civil prosecutionYesYesYesYesYes9
Tax liabilitiesNoNoNoYes subject to paying a flat 15% tax rateNo
Accompanying measures
Increased enforcement, audit[Moderate]Yes (extensive computerization)[Yes]Yes12
Increased penalty (post-amnesty)Yes (financial + “name and shame”)YesYes (including 8-year prison sentence)[No]
Tax reformNoIntroduction of self-assessment after the amnesty period[No]
Duration (one time/permanent)One time; ran for 61 daysOne time; ran for 45 daysOne timeOne timeFirst wave: 1999 to November 2001. Second wave: 2002–03. Third wave: 2004 onward
Anonymity (from administration)NoNoYesNo
Tax amnesty outcome
Gross revenue collectedUS$123 million (1.7% of total general fund revenue)US$82 million, or 0.9% of total revenue (half the percentage of the 1986 tax amnesty). Out of which US$20 million came from interest paid on delinquent taxes; US$32 million came from new filersUS$780 million (current). The forecast was a yield of US$75 millionUS$260 million (current)Very successful: over US$1 billion collected so far
Participation23,592 taxpayers file, but only 346 were new filers22,220 taxpayers participated, out of whom 4,225 were new filersGood: 350,000 paymentsModerateVery good. Believed to have significantly reduced noncompliance
Other37% of the money collected came from “accounts receivable”US$32 million collected from new filers at the (static) cost of US$23 million in waived penalties and US$1.5 million in program costAmnesty perceived by the administration as having been a huge success. Tax debt declined from 40 to 2.5% of annual revenueNot very successful; large number of taxpayers later came forward in voluntary disclosure schemesNew strong administrative powers to deal with tax evasion through the use of bank secrecy
ItalyArgentinaTurkeyThe Philippines
Date of the amnesty2001 (Scudo Fiscale)Multiple amnesties since 1950Early 2003 (Tax Peace Plan)August 2003 (social contributions)18 amnesties between 1972 and 1987
Goal(s) of the tax amnestyBroaden the tax base, boost investment and growth by targeting unreported offshore accountsRaise revenue and broaden the tax baseReduce the stock of tax arrears and expand the baseReduce the stock of social contributions arrears and expand the baseRaise revenue and broaden the tax base
Tax amnesty design
Taxpayer eligible
Unregistered taxpayersYesYes[Yes][Yes]Yes
NonfilersYesYes[Yes][Yes]Yes
Identified delinquent taxpayers1YesYes[Yes][Yes]Yes
Evaders2YesYes[Yes][Yes]Yes
Taxes eligible
All taxesYesYesYesNoYes
OtherSocial contributions
Participation incentives/forgiveness
InterestYes (100%)Yes4Yes5YesYes
PenaltiesYes7Yes[Yes]YesYes8
Criminal and civil prosecutionYesYesYesn/aYes
Tax liabilitiesYesYes (“blanqueos”)No10No11Yes, often
Accompanying measures
Increased enforcement, auditNo13Not significantNot significantNot significantNot significant14
Increased penalty (post-amnesty)YesNot significantNot significantNot significantNot significant
Tax reformYes (in particular, tax rates on financial income were reduced)NoNoNoNo
Duration (one time/permanent)One time (although a similar amnesty was subsequently offered in 2003)One-time amnesties but repeated very oftenOne timeOne timeOne-time amnesties but repeated very often
Anonymity (from administration)YesYes (1991 audit amnesty) [No][No]No
Tax amnesty outcome
Gross revenue collectedAlthough about US$60 billion (4.5% of GDP) was repatriated, the short-term impact on revenue was about 0.1% of GDP (against a forecast of 0.9% of GDP)On average 2% of annual tax revenueTL 4.8 billion (against a projected TL 6.6 billion)Small: for one agency (SSK), collection reached TL 0.5 billion out of a stock of TL 4.2 billion; for another agency (Bag-Kur) only TL 0.85 billion was collected out of applications to restructure TL 1.7 billionOn average 1.6% of annual tax revenue
ParticipationWidespreadLimited due to the expectation of repeated amnesty380,000 taxpayers participated in the program, although 1/3 eventually defaultedModerate. Below expectationsLimited due to the expectation of repeated amnesty
OtherThe Scudo Fiscale had no perceptible impact on investment and growthThere was no monitoring of whether participants complied with their current taxesAmnesty did not prevent the stock of contributions arrears from rising (to 6% of GDP in 2005)

Defined as taxpayers with unpaid tax liabilities that have been detected and notified by the tax administration.

Includes taxpayers that either do not report their tax liabilities, or those that underreport them.

The financial accounts of tax evaders were specifically targeted. First in Ireland, then in offshore accounts.

Payment facilities were used to lower the effective interest paid.

These were recalculated using the wholesale price index, which was lower than market interest rates.

Voluntary settlement amounts are typically 3 to 4 times the evaded taxes/interest and penalties were capped at 100% of the tax.

In lieu of all taxes, social security contributions, interests, and penalties, a payment of 2.5% of the funds declared had to be made.

In lieu of all taxes, interests, and penalties, a payment of 10% of evaded income had to be made (1972) or of 10% of the increase in evaded net wealth from 1981 to 1985 (1986).

Those participating were also protected from “name and shame” provisions.

But payment facilities of 18 months were introduced; interest did not accrue during this period.

But payment facilities of 60 months were introduced; interest did not accrue during this period.

Tax authority granted extensive new powers (access to information in financial institutions), which it used to target specific groups. Regular (quarterly) use of the “name and shame” provisions.

Although the authorities declared that offshore tax fraud would become a priority, taxpayer anonymity negatively and significantly impacted the administration’s ability to improve enforcement.

Some tax amnesties required taxpayers to submit a declaration of assets, liabilities, and net worth.

Defined as taxpayers with unpaid tax liabilities that have been detected and notified by the tax administration.

Includes taxpayers that either do not report their tax liabilities, or those that underreport them.

The financial accounts of tax evaders were specifically targeted. First in Ireland, then in offshore accounts.

Payment facilities were used to lower the effective interest paid.

These were recalculated using the wholesale price index, which was lower than market interest rates.

Voluntary settlement amounts are typically 3 to 4 times the evaded taxes/interest and penalties were capped at 100% of the tax.

In lieu of all taxes, social security contributions, interests, and penalties, a payment of 2.5% of the funds declared had to be made.

In lieu of all taxes, interests, and penalties, a payment of 10% of evaded income had to be made (1972) or of 10% of the increase in evaded net wealth from 1981 to 1985 (1986).

Those participating were also protected from “name and shame” provisions.

But payment facilities of 18 months were introduced; interest did not accrue during this period.

But payment facilities of 60 months were introduced; interest did not accrue during this period.

Tax authority granted extensive new powers (access to information in financial institutions), which it used to target specific groups. Regular (quarterly) use of the “name and shame” provisions.

Although the authorities declared that offshore tax fraud would become a priority, taxpayer anonymity negatively and significantly impacted the administration’s ability to improve enforcement.

Some tax amnesties required taxpayers to submit a declaration of assets, liabilities, and net worth.

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