Introduction
As an old saying goes, there are two certainties in life: death and taxes. Although no one enjoys paying taxes, the right of governments to collect taxes is the basis of society, and all citizens of a nation are forced to pay taxes to support the public benefits that all enjoy. However, many individuals – both rich and poor- avoid paying their tax liabilities through a number of legal and illegal methods. As such, these individuals are found in violation of national laws that prohibit tax evasion; such laws are strict, and individuals found in violation of these laws typically face severe penalties as well as criminal investigations.
Tax Amnesty
However, many governments do not have the resources or the political will to prosecute such individuals, and offer tax amnesty under certain conditions. A tax amnesty is a short window of time that allows specified taxpayers to settle their tax liabilities by paying a penalty fee. These laws are beneficial for both parties, as it allows governments to receive at least a portion of the unpaid taxes without incurring the time and money that a criminal investigation would require. Tax havens are notoriously difficult to prosecute, as international law is rarely enforceable, and tax-dodging attempts are well disguised by individuals. By pursuing a tax amnesty, Individuals benefit by avoiding criminal prosecution and the seizure of assets in the event of a failed legal battle. Governments also incentivize tax-liable individuals to pursue a tax amnesty by imposing harsher penalties on individuals who are eligible, but do not undergo the tax amnesty process.
Prevalence
Tax amnesties are prevalent throughout the world, but typically are a feature of wealthy developed and developing countries. This is due to a better ability to monitor financial transactions, as well as low levels of corruption within government institutions. Tax amnesties are rarely seen in developing countries as tax enforcement is difficult due to general poverty in the nation and the lack of political will. Typically, tax amnesties are offered every few years in order to incentivize such individuals to fulfill a part of their tax liability.
In the United States, a federal U.S. tax amnesty was given to over 14,700 Americans who were found guilty of tax evasion and other related offenses. Furthermore, many local and state entities have pursued tax amnesties in order to receive a portion of their owed tax receipts. Tax amnesty programs in Los Angeles and Louisiana have proven to be highly lucrative, with the state receiving significantly more revenue than anticipated.
Tax amnesty has also been a tried method of tax collection in the European Union, particularly in Mediterranean countries that face frequent shortfalls in tax revenue and heavy tax evasion by the general population. Northern Europe has not shown the same philosophy, and has chosen to instead make examples of individuals rather than pursue tax amnesty policies.
Conclusion
Ultimately, tax amnesty is an effective strategy for government to collect on a portion of their outstanding tax receipts without incurring the fees and man-hours that a criminal investigation would entail. As such, tax amnesty benefits all parties involved, and will continue to remain as a last-ditch strategy for governments attempting to increase revenue.
About the author
This article was composed by Nathan Gilbert, a freelance writer based in Tucson, Arizona. Nathan focuses on law, taxation, accounting, personal finance and other related topics. To learn more about taxation check out the accounting jobs with moneyjobs.com by visiting moneyjobs.com.
