In Canada they are finding that tax amnesties don’t work.
Canada Revenue Agency’s voluntary disclosures program is pulling in more than 6,600 prodigal taxpayers each year — typically older, wealthier men — who last year belatedly wrote cheques to the government for more than $300 million in taxes owed.
But an internal review that looked at what these income-tax evaders did in the three years following their confession found that one in three again failed to file all the required returns, despite having started with a clean slate.
And about one-quarter of another group of GST cheats who confessed their sins to the taxman also failed to file required GST returns in the period after coming clean.
The main clients are self-employed men, average age 49, whose income is $220,000 on average, says the report, based on sample data from 2003-2004. Two of the men had incomes of more than a $1 million.
I remember last year there was some debate over whether we should use tax amnesties here. The best mental picture to use for tax compliance is the carrot and the stick approach. That is to say that taxpayers should be initially be given an incentive to comply, and then the full force of the law should be thrown at them if they don’t comply.
This approach makes the risk of non-compliance to great, and taxpayers will voluntarily comply. It seems the problem with this amnesty is that there is a carrot, but no stick is being used. In fact the article goes on:
A spokesperson for the agency said none of the tax cheats who volunteer information are routinely red-flagged to ensure their bad behaviour does not continue in later years.
Bad revenue administration. Just remember the Taxblog.co.nz carrot and the stick approach Canada…