Nowhere to hide
Tax Break has just had its longest break since its inception in 2011 due to the difficult period Israel has been going through. The post below is more sober than usual (in fact, for some people, it might be downright depressing). Please do not adjust your computers – normal service will be resumed as soon as possible.
Shortly before Israel, in order to protect its population from the indiscriminate firing of missiles from Gaza, was left with no alternative but to enter into a bitter war with Hamas, the Israeli Tax Authority embarked on its own “seek and destroy” mission.
The targets were Israeli residents who “omitted” the reporting of income to the ITA.
The Income Tax Commissioner has stated on several occasions since taking office last year, that he favours a policy requiring all residents to file an annual return – as opposed to the current situation where most employed individuals are covered by withholding tax on their salaries and transactions through Israeli financial institutions.
Apart from the scourge of incorrigible Odd-job men who have, “Pay me in cash and I will knock off the VAT,” woven into their DNA – as well as monthly property rentals paid for in grubby two hundred shekel notes – the real problem in 21st century Israel is income from abroad.
Until 1998, when the foreign exchange market was opened up and Israelis could freely invest overseas, the system worked quite well. If you had income-bearing assets overseas, you were, by definition, a naughty person (euphemism for a crook). Even our most lamented, assassinated Prime Minister was caught red-handed holding an American account from the time he served as Ambassador in Washington (to be more precise, it was his less lamented wife).
Nowadays, apart from occasional new immigrants with all sorts of exemptions, anybody holding income-bearing assets abroad is required to come forward and voluntarily file a tax return (sometimes just a ‘short-form report’).
Aye, and there’s the rub.
It is evidently a lot easier to break the law by “omission” than “commission” and the Income Tax Commissioner believes there are unbelievable sums of undeclared income offshore. He reasonably concludes that, if individuals had to file a return that included a declaration that any false statement could result in the cutting off of their hands and feet, most would come clean.
So far, so good.
The Authorities have, however, admitted that, with current staffing levels, a nationwide filing requirement is not on the cards. As a result, they came up with the rather clever idea of sending a letter to 120,000 individuals who do not currently file a return, but who make regular trips abroad, own more than one property or just look plain suspicious. The polite letter is accompanied by a form to be honestly completed and signed (on pain of death).
This all sounds eminently sensible, but allow me to apparently digress for a moment.
The authors of the cult book ‘Freakonomics’, who have been milking the franchise for all it is worth, recently came out with their latest, very underwhelming, ‘Think like a Freak’. I found only one notable idea in this tome, but it is a real eye-opener. Have you ever thought (like every week) when you receive a spam email from Nigeria in search of your bank account, why the scammers don’t move on from Nigeria to, say, Zambia? Surely, the logic goes, everybody knows that Nigeria is synonymous with fraud? It turns out that the scammers are not as stupid as they seem as they bob about on their hundred foot yachts in the Caribbean.
The Nigerian scammers work to minimize ‘False Positives’. The e-mail you receive in your spam-box has been sent simultaneously to millions at virtually no cost in time and effort. If only one per cent got back to them with queries or a possible desire to invest, they would need armies of potentially whistle-blowing staff to handle the correspondence. The only people who will respond to these e-mails today, apart from Interpol and the odd Nigerian, are real fools who have been out to lunch for the last 10 years. They are, almost by definition, totally gullible. The Nigerian bit weeds out the ‘False Positives’.
Now, given that the tax authorities admit that they are short of manpower, the form accompanying their ingenious plan should have been simple. It should have asked a series of Yes/No questions followed by threat of extermination and excommunication. The 120,000 forms could have been run through a computer in an afternoon and the few thousand guilty would have received notice that their lives are henceforth ruined by the following morning.
But this is Israel. Instead of delaying the process by half a day, they decided to send out the standard document for the voluntary opening of a tax file. Let alone the individuals, it wasn’t clear to us tax advisors what needed to be filled in. Furthermore, the form asked for a considerable amount of information that will mean each one needs to be waded through manually. According to some commentators, it will take months to get through the pile.
Thankfully, the army went about its business more systematically. God bless the State of Israel and its excellent defence forces.