Campaigns by the Israel Tax Authority to find tax evaders in recent months have uncovered the huge scale of tax evasion in Israel, which requires new thinking and a change in perception about the issue.
These actions, part of a nationwide Tax Authority campaign called "Out into the field", include audits of the books and receipts of businesspeople throughout the country, and collection of their tax debts.
On the basis of figures released by the Tax Authority, in most of the places where audits were carried out, serious flaws in the recording of receipts were found, on a wide scale. For example, 31% of audited businesses in Beersheva failed to record receipts. The situation was even worse in Haifa, Afula, Hadera, and elsewhere, where deficiencies were found at more than 40% of the businesses audited. A recent campaign in Safed found deficiencies at half of the businesses audited.
These figures indicate that much of the Israeli population is engaged in tax evasion. No one knows the precise number of tax evaders, or the amount of money that the government loses every year from tax evasion. However, it is clear that there is a substantial difference between the amount of tax that should be collected and the amount collected in fact. I estimate the amount of unreported income at 22% of GDP a year.
The basic question is: Why do so many people evade their taxes? Beyond the answer that many people want to keep what they earn for themselves, it is necessary to examine how they justify it. Many people believe that taxes are evil by definition, and some even assert that taxation is theft by the authorities.
There is no doubt that the levying of taxes, especially at high and progressive rates, harms property rights - a right defined in the Basic Law: Human Dignity and Freedom - and the right to protect property that derives from this. Other people assert, with justice, that the tax code is unfair, or that tax revenues are used for undesirable purposes, or even lead to corruption. People who hold these opinions see no moral problem with tax evasion.
In addition, calling tax evasion theft is incorrect. Theft is defined as the illegal seizure of property that belongs to another person without justification or consent. While tax evasion is illegal, it is not the taking of another person's property. Nothing is being taken from the government, because it never held the tax. At most, this is a breach of contract between citizens and the government over payment for public services received.
When the tax burden is high because of the need to fund unnecessary government spending, a country's citizens will try to reduce their tax liability in any way possible. This is ethically rational and justifiable conduct. The lower tax rates are, the more people will consider paying taxes to be a moral duty, and tax evasion will be reduced accordingly.
Dr. Avi Nov is an attorney specializing in Israeli and international taxation, and a lecturer in the School of Management's law and business departments.
Published by Globes [online], Israel business news - www.globes-online.com - on September 9, 2009
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