Tax amnesty
Tax amnesty allows taxpayers to voluntarily disclose and pay tax owing in exchange for avoiding tax evasion penalties. It is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability relating to previous tax periods. It typically expires when some authority begins a tax investigation of the past-due tax.
In some cases, legislation extending amnesty also imposes harsher penalties on those who are eligible for amnesty but do not take it. Tax amnesty is one of voluntary compliance strategies to increase tax base and tax revenue. Tax amnesty is different from other voluntary compliance strategies in part where tax amnesty usually waives the taxpayers' tax liability. In 2016, Indonesia had run one of the biggest Tax Amnesty scheme in the world and managed to gather around US$9.61 billion as taxes in 9 months.
Introduction of amnesty in any fiscal year is to help a state treasury raise tax revenues, adding beneficiaries who have not declared their assets previously. The main purpose is to replicate the economy and encourage individuals and corporations to declare their wealth as it may arise. Under this scheme, the beneficiary just has to pay the tax on the total assets which are declared. States introduce this scheme when they believe that individuals are hiding their wealth from the tax authorities.
Tax revenues raised through these schemes are used for the well-being of the state. Every individual and company has to report annually on their business activities in their tax return. Those who remain transparent in declaring their assets and liabilities to the tax authorities do not get inquiries or investigations. Tax amnesty is beneficial for those who have been hiding or not declaring their assets fair and transparently for years, who can make their assets legitimate by declaring them whether they exist within or outside the country. When such schemes are introduced, state revenue and tax departments give time to declare their wealth without any penalty. After it elapses, there will be a penalty in addition to the original tax rate. Countries change their laws depending on various factors like the level of taxpayer participation, the overall effectiveness of tax administration and enforcement.Amnesty
Financial
There are schemes wherein the government provides financial relief to tax evaders. Under such schemes, the government decides to waive off all or part of the financial penalties which become due as a result of tax evasion. In some cases, the government only allows taxpayers to pay back the full sum in easy instalments over a longer time frame. Hence, investors gain because they can earn interest on the unpaid tax as well.Legal
In some cases, legal immunity is not provided, so if the taxable income was generated from some illicit activity like drug smuggling or other criminal endeavours, the government could still prosecute the taxpayer.
On the other hand, there are some tax amnesty schemes that provide legal amnesty as well. These schemes basically promise that the government will simply close their eyes to the source of the taxable income as well. The government promises to not conduct any investigation or disclose any information after they receive the tax revenue, which is due to them.Reasons
There are several possible reasons for tax amnesty.Economic and financial
During the crisis period, financial difficulties of taxpayers as well as increased public expenditures may occur. Tax amnesties are considered necessary in order to collect at least some of the tax claims. It also helps relieve the taxpayers, who are unable to pay tax debts, and revive the market.Political
Possibility of tax amnesty may be used by political parties to gain more votes when the next election period is about to come. Determination of the extent of the amnesty is entirely a political decision and is in the government's power.Technical and administrative
For resolving existing confusions, defective points of the system, and making radical changes on the tax system, liquidation of past periods may be necessary. It is also hard and administratively exhaustive to collect tax debt from taxpayers in financial difficulties. Tax courts have a heavy job workload and collecting taxes takes a long time. Tax amnesty is an easy and beneficial way to solve these administrative difficulties.Negative effects
Many positive effects and reasons for tax amnesty are effects only in the short run. Tax amnesty have also many opponents because of the long-term effects on society. The main reason is that we must be all equal in terms of law and justice. Tax amnesty gives an advantage to those who break the law. People lose confidence in justice, and punishments lose their effectiveness. It may lead to decreasing morality and increasing tax crimes. Some of these negative effects may be eliminated with strict regulation and careful choice of who can receive tax amnesty. Tax amnesty is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability relating to a previous tax period or periods and without fear of criminal prosecutions. Canada resolves this issue by waiving only the penalty and still charging the tax owing and arrears interest, removing the advantage from those who break the law, while keeping an incentive for them to pay up voluntarily.Countries
Australia
Australia has implemented several tax amnesty programs in the past, including the "Project DO IT" initiative in 2014 and the "Taxation Amnesty Initiative" in 2007.The Taxation Amnesty Initiative was a unique program that enabled qualifying individuals and businesses to reveal any tax liabilities that were not reported or underreported without facing legal consequences. The program provided a reduced penalty rate for those who willingly disclosed their tax obligations. The initiative concluded on 31 January 2008. The purpose of Project DO IT was to motivate people and companies to reveal any income or capital gains that were not reported or underreported to the Australian Taxation Office. Those who chose to disclose their tax obligations voluntarily were given a chance to receive reduced penalties and protection against criminal prosecution. The program officially concluded on 19 December 2014. During Australia's tax amnesty in 2014, thousands of rich Australians declared billions of dollars in untaxed assets and income stashed in bank accounts in other countries like Switzerland.Belgium
In 2004, the Belgian Parliament adopted a law allowing individuals subject to Belgian income tax to regularize the undeclared, or untaxed, assets they held before 1 June 2003. The government increased the tax free portion for individuals from portion from EUR 10,160 to EUR 13,500. The law aims to eliminate the current tax system that values some benefits in kind at a flat rate, resulting in a lower tax amount than their actual value. Under the new system, certain benefits in kind, such as free accommodation, utilities, or household staff provided by a company to its director, will be taxed at their actual value. For big companies, the proposed changes to the "Definitively Taxed Income" regime by the state would require that shares be held with a specific and durable link between the shareholder company and the company whose shares are held. The previous two-step system of considering dividends in the taxable base of the shareholder company, then deducting them, could change to a pure exemption of dividends. Additionally, the proposed changes could remove the beneficial tax regime for investment companies known as "SICAV RDT" / DBI-Bevek." The tax reform implemented in Belgium in 2017 involved significant structural changes that aimed to broaden the tax base while lowering the overall tax rate.Canada
Canada has tax amnesty under both the Income Tax Act for income tax related offences and under the Excise Tax Act for GST/HST matters. The tax amnesty is referred to by the Canada Revenue Agency as the Voluntary Disclosure Program and has its statutory authority under subsection 220 of the Income Tax Act and the sections 88 and 281.1 of the ETA which set out the rules for taxpayer relief applications. This relief is available for a 10-year period prior to the date of filing and covers unfiled tax returns and unfiled information returns such as offshore asset forms T1135 or T1134, as well as tax evasion in the form of unreported income or over claimed expenses or deductions. Eligible taxpayers will receive full penalty relief, will avoid any possible tax evasion prosecution. Only the penalty will be waived, and the taxes owing and arrears interest must be paid unless otherwise waived. The interest will be waived only under three situations: extraordinary circumstances, actions of the CRA, or inability to pay or financial hardship.France
In 1986, the government of Jacques Chirac decided of a tax amnesty for companies and individuals who had hidden profits or revenue in tax heavens. The companies and individuals who took their money back to France had to pay a flat 10% rate. More than 16 billion francs came back to France in 1986.Germany
In 2004, Germany granted a tax amnesty in connection with tax evasion.Greece
On 30 September 2010, the Hellenic Parliament ratified a legislation pushed through by the Greek government in an effort to raise revenue, granting tax amnesty to millions of Greek citizens by paying just 55 percent of the outstanding debts. In 2011, the European Commission requested Greece to modify its tax legislation as its tax amnesty was considered discriminatory and incompatible with European Union treaties.India
Government of India allowed the people to declare their undisclosed incomes in Income Declaration Scheme, 2016 and pay a total of 45% tax for one time settlement. About 64,275 disclosures were made amounting to ₹652.5 billion. The scheme was in follow up to the demonetization when the country's Prime minister Narendra Modi scrapped 500 and 1000 rupee bank notes in a bid to flush out cash earned through illegal activities, or earned legally but never disclosed.