Tax Break

John Fisher, international tax consultant

Archive for the tag “Money laundering”

No laughing matter

Gallows humor

The masters of smalltalk have to be taxi drivers, barbers and publicans (Google translate: barkeepers). I have wondered for decades what humorous stories publican Albert Pierrepoint shared with his appreciative clientele, as they handed over their shillings encouraging him with the words, “And one for yourself”.

For Pierrepoint had an interesting sideline – he was Britain’s public executioner of choice. Some of the most notorious villains of the 20th century passed through his rope until he hung up his boots in 1956. If the stories are to be believed, he never treated that work as a laughing matter, and – indeed – even once had to hang one of his own customers with whom he had regularly sung duets across the bar.

A short, disagreeable piece on the Israel Tax Authority’s website made me think of Pierrepoint the other day. In an attempt at humour, a report of the results of a spot audit at two of Tel Aviv’s open air food markets was laced with quotes from the caught-red-handed miscreants: ‘ I am careful to register sales but I am after an accident and take pills.’ ‘The paper roll on the till ran out and, just as you arrived, I put in a new one.’ ‘My accountant told me I don’t need to register credit card transactions, only cash ones.’

Now, apart from none of these lines being side-splittingly funny (it IS a tax authority website, after all), there is an element of gratuitous cruelty or, at minimum, a lack of sensitivity. This was not an edition of Candid Camera. As American humorist Dave Barry once wrote after being selected for random audit by the IRS: ‘Remember that, even though income taxes can be a “pain in the neck,” the folks at the IRS are regular people just like you, except that they can destroy your life.’ What did the inspectors expect the panicked market stallholders to say?

I cannot help but believe this is all about the modern world’s obsession with self-promotion. Gone are the days when people with naturally anonymous occupations (like tax inspectors and accountants) beavered away anonymously – their reputation earned for their true professionalism rather than their vacuous razzmatazz.

Years ago, I happened to be at one of Tel Aviv’s main tax offices when a middle-aged man – having evidently been told that he was to be hung out to dry due to chronic non-payment of taxes – went crazy. The inspector was about to call security, when the soon-to-retire Chief Collection Officer came out of his private office, put his arm around the individual, said some soothing words and led him into his office where he offered him a coffee. However much the individual was in the wrong, the tax official understood his distress.

The tax authority’s money is hung out to dry

So, if you want to make fun of somebody, how about the Globes newspaper report the other day that the Israeli Tax Authority is unable to collect as much as a billion shekels from foreign assessees because neither the Bank of Israel nor the commercial banks are willing to facilitate payment of, what might be, laundered funds? A case of ‘hoisted with their own petard’? What a joke.

Monkey business

Chimp

Pass the monkey wrench

In its relentless efforts to clean us all up, the Israeli Tax Authority has just thrown another spanner in the works of the well-greased black market.

Meek householders faced by odd-job men  demanding cash as they flex their bulging muscles, not to mention seasoned mafiosi and disgraced politicians, will be questioning my timing. Surely,  the ‘Law for Restricting the Use of Cash’ was last year’s news, albeit that it only came into effect two months ago? The man with the leaky roof has already hardwired his brain with a little red light that goes off  when he hears – in a plethora of accents and grammatical constructs – the sum of eleven thousand shekels. Although that is not the final word (or number) on the maximum amount that can be paid in cash – it is a good trigger for the sweat glands to open. From October this year, not only those that demand cash, but those who pay it, will be liable to a fine if caught.

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Cheques are so much easier

The reason for mentioning the incursion into the colourful world of banknotes now in particular is the helpful simulator the tax authority has recently uploaded to its website. The idea – it appears – is that Joe Public can check, in the space of less than a minute, whether a cash payment he plans to receive or make is permitted and, if not, the ‘damage’ if he is nabbed by the long arm of the law.

Having carefully read the authority’s professional circular, replete with numerical examples, and then tested the simulator with the same examples, I have – at time of writing – two criticisms. Firstly,  the simulator’s results in respect of penalties are wrong – someone forgot to program the simulator’s programmer with the correct terms of the law. But, what is a little boo-boo among friends? It is the second point that, in my humble opinion, is the real issue, and on which I feel compelled to dwell.

For a deterrent to be effective, those it targets must either live in abject dread of the terrible consequences of breaking the law: death by hanging, prolonged incarceration, financial ruin; OR they must be left to fear the unknown.

The moment taxpayers can punch the numbers into their smartphones and summon up the bad news – which, starting at 15% of the illegally paid amount, is an irritant rather than a life-destroying event – for many the fine simply becomes a refinement of the black market calculation.

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Joe Public

An example will help the explanation. The abovementioned Joe Public, a typically morally unchallenged householder, hires Art Dodger to redecorate  his house. Art gives Joe a price, but tells him that – if he pays 25% in cash, he will knock off the VAT.  Until the recent change, the only thing stopping Joe was his civic responsibility which – given that he is typically morally unchallenged – is probably handsomely outpriced by the discount. Art, on the other hand, has had to make a risk assessment before making his offer. He will not be declaring VAT and income tax. He probably reckons that – even if he is found out – he will get away with a slap on the wrist and paying both taxes with interest. All in all, the income tax saving is appealing.

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Art Dodger

Enter the new law, and the soon-to-be-corrected simulator. Art retains his sunny outlook about not getting caught. Joe, on the other hand, now knows he has a risk – and, thanks to the simulator, knows exactly how much as he sits across from Art at his kitchen table. Joe might – as the law (and its simulator) hopes – tell Art to forget it. On the other hand, he might – depending on the amount at risk – ask Art to improve his offer. If that happens – depending on how Art responds – the black market  just got more sophisticated.

If I were the tax authority, I would bury the penalty part of the simulator, defects and all, in a very deep hole. The black market is a scourge that, deep down and however much our moral compass waivers , we all want to be rid of. The new law is a step in the right direction.

Oh, and they could always reassign that programmer to ‘Tax Refunds’.

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