Reforming Tax Enforcement - An Overview

Article Abstract:

The Keith Committee of the United Kingdom has published four volumes discussing reform of the tax enforcement system. The first step is improving identification of taxpayers. A penalty tied to income not disclosed rather than a flat-rate penalty is proposed. In order to entice taxpayers to complete returns, a longer time limit of three months for submission of returns is recommended with an extension allowed for unusual sources of income. A penalty again should be readily available for non-compliance. Compliance time for business accounts is a problem as well - a year is recommended for first-timers. Business accounts are to be kept and recorded and available for inspection, but the form was not described. The committee stands firm on the 'benefit of any doubt' requirement in clamping down on tax avoidance. The Inspector should be able to make decisions in the event of doubt. The Keith Committe has recommended a series of automatic, rather than negotiable penalties with more objective definitions and less discretion on the part of the Inspector. The rights of an Inspector to require papers from a third party are more clearly defined with stiff penalties for non-cooperation. The committee is in favor of searches for evidence, with a warrant, in the event of a serious suspected fraud situation. The need for a grievance procedure and enhanced safeguards in this situation is also pointed out.

Tax evasion

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Deep Discounted Stock and the CGT Anomaly

Article Abstract:

In 1982, the government of the United Kingdom released restrictions on stock issues allowing fixed interest securities to be released at a deep discount. A tax dilemma was foreseen as the interest foregone by the lender is technically accrued interest when the stock is redeemed, not ordinary capital gains. The tax proposal treats it as such - the income applicable to the deep discount is taxed as income, the remainder as capital gains. There is a fiscal imbalance here as all income is really the same and genuinely should be treated as such. Capital gains should be treated as periodic interest payments. Dividends on investment in equities should be treated likewise. Reinvestment causes increase in value of the stock, but if distributed, it would have been dividend income. For tax purposes, at least, the two are interchangeable. Capital income concept is appropriate for financial reporting, but should not be utilized for taxation purposes. Historically, arguments have been made pro and con equitable taxation of varying forms of income. Other areas of tax legislation have been adversely affected by the distinction between capital gain and income, such as capital gains indexation. The distinction also complicates legislation.

Capital gains tax

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Reforming Tax Enforcement

Article Abstract:

The Keith Committee (or Committee on Enforcement Powers of the Revenue Departments) was set up in July 1980 with the task of assuring compliance with tax laws to protect taxpayers from excessive burdens in the United Kingdom. They have published three volumes of reports with 196 recommendations. Its estimates on the size of the black market are questionable. They are not based on empirical research, but agree with the Committee of Public Accounts and Inland Revenue figures from 1980 of 7.5 per cent. The Central Statistical Office estimates the black market only to be between two and three per cent of the gross domestic products. It recommends that tax returns be statutory and subject to a late filing fee. The recommendations approve more control of the trader and access to his records, similar to the requirements in the United States. Many of these provisions would be of interest to the accountant. Tax offenses would include back-duty and be published. Tax enforcement therefore would be thrown into the legal arena.

Income tax

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