Reclaiming Development: an Alternative Manual for Economic Policy - Essay Example

? Tax Evasion The current economic structure of the globe is highly influenced by the emerging trend in the political environment that keeps realigning itself. This has lead to liberalization of most economies and open trade. It is worth to note that the increasing expenditure of countries arising from the exponential population growth strains government coffers. To finance its operations, the government need to collect revenue through taxation (Grau, 2003). It has however been realized that there exist some concepts surrounding tax imposition and collection that tend to make it difficult to effectively collect the taxes. Tax evasion and avoidance have become common and is raising concerns over the effective funding of government administrative functions. It is therefore imperative that the government develop strategies that would help it reduce the cases of tax evasion and avoidance as this is eating into the country’s financial policies. People who deliberately avoid tax by hiding their wealth and income tend to pose a great challenge to the society. In the country’s effort to adjust the economy and eliminate the balance of payment deficit, it is essential to detect and follow up tax evaders and ensuring that they pay up. The world is currently experiencing technologically-driven transformation in the way business is done. The private sector is a pioneer in technology application in daily business operation including honoring of tax obligations. It is therefore advisable that the government need to seek collaboration with the private sector to develop a workable technologically driven mechanism of curbing the tax evasion menace. One of the greatest challenges is the range of data available. The government need to formulate a legal structure that is able to capture the property and assets of various entities in the country so that it can easily close down on the tax avoiders. This may be achieved through the use of sophisticated technology to analyze the purchase of property, bank loans, individual and corporate tax returns (Koniordos, 2005). The government may also target bank accounts and the employment data with the aim of identifying asset property, mark and trace financial transactions that raises suspicion and point out those who are trying to keep their wealth and income off the sight of the authorities with the aim of evading tax. Incorporation of technology in implementing tax policies also means that resources will be freed and skilled manpower from the private sector will enhance chances of rounding up tax evaders. Past records indicate that by 2010 review of the UK government’s spending, over ? 900 million to attempt to solve the problem of tax avoidance, evasion, economic fraud through increasing the size of the human capital base on this issue, invest in more skills, increase the use of data from a third party and consistently develop mechanism of tackling the slippery tax evaders and the hidden wealth. By 2012, the government stepped up its campaign of challenging the citizens to honor the tax obligation in the spirit of boosting economic growth for the general welfare of the society. The efforts of the government to apply various tax policies have always been ineffective and this explains why further remedial measures are needed. The governments of UK has been making many efforts to exploit the opportunities offered by the available data and modern technology to unveil the hidden wealth and income and to hasten its efforts in curbing tax evasion. One of the approaches that can yield better results is curtailing offshore banking fraud that is one of the greatest loopholes of tax evasion. The government need to access data with the aim of identifying linkages of such foreign accounts to some people. If the account holders are found out they should be compelled by the government to pay interest on top of taxes so far unpaid as a penalty. The actions that are important to recover such unpaid taxes entails co-ordination with foreign countries’ monetary authorities and banks to help in exposing the hidden fortunes that have non-deducted tax. It is also important for the state to invest in a team of experts who have in-depth in tax related concepts and collaborate with other nation’s tax administration (Kopits, 1992). This will enhance development of tools and techniques to asses the internet to dig out more data that can back up compliance objectives. Co-operation with other bodies and other governments will also constitute multilateral agreements with similar tax jurisdiction in which data can be shared to expose those who attempt to evade tax by transferring their wealth overseas. Besides this program, it is important to resort to the social approach where the government should take an initiate to promote tax campaign by educating people to adopt the positive spirit of nationalism by paying up their taxes for the sake of collective responsibility towards the development of the country. This can be achieved through gradual but consistent pursuit of the new methods of tackling tax evasion like the shift of behavior and attitude among the people who opted not to comply with the call. This may also be reinforced by the fact that tax evasion is illegal and cannot be tolerated by the government authorizes. This may be facilitated by increasing the frequency of undertaking criminal investigations on the offshore tax evaders. This may be appropriate if the names of the evaders are published and taking other punitive actions against tax jurisdictions that harbours such tax evaders. The government may also take to act against the wealthy tax evaders who take advantage of their influence to take their wealth to offshore bank account. Such tax evaders should also be subjected to further financial scrutiny for a period of up to five years. The government can also invest in a dedicated elite intelligence unit that is capable to carry out intensive and extensive research that can dig out and identify the tax evaders who have hidden or an accounted for wealth base. The government may also use of evasion hotline reports that are connecting members of the public who are encouraged to provide information to help the tax authorities track them. Further literature review reveals that some aspects of uncertainty will be a concern on the predictability of the liability of tax, which always results when the right amount of tax liability is vaguely defined. It has been established that a model of taxation which includes an audit report may help in remedying the issue of tax evasion. It is due to such a scenario that the concept of understatement of income turns out to be a challenge because the tax payers are not sure whether a given income and wealth declaration (Weimar, 2008). In respect of the tax payers’ consideration, it is important to note that increased dispersion of any possible verifiable taxable income initiates improved compliance especially owing to the taxpayers’ perceived amount of risk. The point in this case is that for a specific reported income and wealth, more variation lowers income at the lowest desirable state of the global economy in the case where auditing is done for taxpayers and the income tax is found to be of the highest value. In respect of such ideas, the government need to seek alternative criteria of approaching this problem lest it look like it is optimizing tax evasion. Some scholars accept the possibility that by investing resources, the tax payers can minimize the uncertainty that may be part of the tax liability. These resources can take many forms ranging from research to professional assistance from tax experts. In such a scenario that the cost of unpredictability constitutes not only the difficulty posed by uncertain tax liability although the resources applied to reduce this uncertainty. Using some of the tax models that the economists have formulated like an A-S model, there is a direct address and connection with the potential taxpayers. There may also be a consideration for the supply of tax evasion and think about the general equilibrium of consideration on the equality of supply. The context of this conceptual extension is the existence of the underground economy. Some economic researchers have developed sets of tax models which consider two sectors which can be termed as above the ground economy and the underground economy that can provide two separate goods (Seidman, 2003). It is worth to note that workers in the country have a different distaste to the policy and risk aversion in the case of tax aversion. Although the actual results are dependent on a model, there are three basic conclusions that can be made. It has been established that much gain from tax evasion which may be shifted consumers from the actual evaders through pricing policy. Another possible observation is that relative price and its effects will tend to discourage effect of tax rate alterations on the degree of evasion (Chang & Grabel, 2004). The concept of elasticity is also likely to feature in the efforts of government to understand the concepts of taxation. The impacts of tax evasion on the tax rate changes arising from marginal revenue which will rely on whether the consumers will depend on the concept of elasticity. This is the case where the government through its tax agencies need to use the concept of elasticity to analyze the behavior of citizens towards tax evasion. Another remedial measure that the government needs to take is the optimal auditing rules. Under this concept, one scholar advanced a theory called Allingham-Sandmo model which talks about the probability of detecting tax evasion which fixed or unrelated. This model claims that enforcement of the tax laws is not enough to deter evasion (Taylor & Weerapana,2012). Other models state that the audit strategy be used by tax collection agency and to rely on the report of the people in a manner that seeks to optimize the explicit objective functions. The underlying secret here is that frequent auditing is likely to pose threat to the people planning to evade tax. This frequent auditing has an in incentive of intimidating the culprits of the consequences they are bound to face by failure to comply with the tax requirements. When the culprits weigh the benefit of evasion against the cost of being found out by the authorities, they will minimize cases of people avoiding or evading tax (Holmes,2007). Optimal auditing rules scrutinize the wealth and asset base of firms and wealthy people in their various accounts and even overseas financial institutions so that the compliance to tax can be ascertained. This will instill some discipline in every citizen and corporations to declare their true worth and pay tax that is consistent with the constitutional requirements. The government of the United Kingdom has taken various steps to ensure that it tackles the issue of tax and such measures include; adoption of an internationally integrated information and communication technology system that is able to help it trace all the economic activities of its citizens in overseas states. It has been realized commonly that most people especially the elite class easily wire their finances to overseas accounts where they are not taxed yet they are generated by their mother country’s resources and they also enjoy all the constitutional rights including the right to protection and other state given services. There has been efforts by the government of UK that seeks also the need to employ the best taxation policy like progressive taxation principle (Cordes, 2005). This is due to some circumstances that can force an individual to avoid paying tax. This has been the case with low income earners and middle class who tend to compare their income level against the amount of tax they are obliged to pay. Suffice is to say that the higher the cost of tax the more it is easy to avoid paying tax. Finally the government needs to clearly address the aims of tax administration and the amount of tax that can be collected with the different input combination. In other words, the government need to assess the economic viability of the tax evasion combat policies (Garman & Forgue, 2008). The government must practice sound social, political and economic policies that seek to consider the burden of economic weight the citizens’ bear. At the same time it must ensure that the development carried out by the government must be motivational to the citizens so that they can be mobilized easily to embrace positive attitude towards payment of taxes. Reference Chang, H.-J., & Grabel, I. 2004. Reclaiming development: an alternative manual for economic policy. New York, N.Y., Zed Books. Cordes, J. J. 2005. The encyclopedia of taxation & tax policy. Washington, D.C., Urban Institute Press. Garman, E. T., & Forgue, R. E. 2008. Personal finance. Boston, MA, Houghton Mifflin Co. Grau Ruiz, M. A. 2003. Mutual assistance for the recovery of tax claims: including a summary of the relevant contents of the 2002 update to the OECD model tax convention. London [u.a.], Kluwer Law Internat. Holmes, K., J. 2007. International tax policy and double tax treaties: an introduction to principles and application. Amsterdam, IBFD. Koniordos, S. M. 2005. Networks, trust, and social capital: theoretical and empirical investigations from Europe. Aldershot [u.a.], Ashgate. Kopits, G. 1992. Tax harmonization in the European Community: policy issues and analysis. Seidman, J. S. 2003. Seidman's legislative history of federal income tax laws, 1938-1861. Clark, N.J., The Lawbook Exchange. Taylor, J. B., & Weerapana, A. 2012. Principles of economics. Mason, OH, South-Western Cengage Learning. Weimar, M. R. 2008. Identifying and quantifying rates of state motor fuel tax evasion. Washington, D.C., Transportation Research Board. Read More