Rabbinical courts with hundreds of millions, underworld organizations that openly thumb their noses at the law, and a fictitious invoices industry amounting to tens of billions of shekels - these are some of the findings in the State Comptroller's report on unreported capital published today.
The report describes how golden opportunities to collect billions in taxes, bring the leaders of criminal organizations to justice, and deter tax evasion are being squandered one after another, due to lack of coordination between law enforcement authorities, lack of preparation in investigating cases that have come to light, and a series of peculiar arrangements involving the Israel Tax Authority. If only the state were capable of enforcing the law on all tax evaders, it would pay for the 0% VAT plan for young couples 13 times over, or for totally eliminating income tax for wage earners.
"The implication of the shadow economy in Israel is loss of tax revenues of about NIS 40-50 billion per year, an amount equal to nearly the entire shekel budget of Israel’s Ministry of Defense, Ministry of Health, or Ministry of Education," the Committee to Examine Reducing the Use of Cash in Israel’s Economy states in its report. "With this amount, the VAT rate could be dramatically reduced, thus reducing the cost of living, or alternatively the rate of tax on labor income could be reduced. As another illustration, income tax receipts from employees in the economy total around NIS 40 billion - an amount similar to the tax revenues lost due to the shadow economy."
Over the past decade, the authorities in Israel have devoted great attention to the war against unreported capital. Among other things, collection enforcement campaigns were announced, cooperation between authorities was announced, activity by the Israel Money Laundering and Terror Financing Prohibition Authority was stepped up, and the recommendations of the Locker Committee to Examine Reducing the Use of Cash in Israel’s Economy were adopted just last week. Nevertheless, the State Comptroller's report shows how a series of embarrassing administrative failures led to defeat in the war against unreported capital. At the same time, the report offers a ray of hope - a smart reporting system launched in recent years is likely to enhance enforcement and increase state tax revenues by billions of shekels - if resources are allocated to bolstering enforcement. Instead of raising taxes, the State Comptroller recommends allocating more money to collecting taxes from all the evaders.
Published by Globes [online], Israel business news - www.globes-online.com - on October 29, 2014
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