Fiscal Amnesty

Tax amnesty allows taxpayers to voluntarily disclose and pay tax owing in exchange for avoiding tax evasion penalties. It is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability (including interest, penalties, and criminal prosecution) relating to previous tax periods. It typically expires when some authority begins a tax investigation of the past-due tax.

In some cases, legislation extending amnesty also imposes harsher penalties on those who are eligible for amnesty but do not take it. Tax amnesty is one of voluntary compliance strategies to increase tax base and tax revenue. Tax amnesty is different from other voluntary compliance strategies in part where tax amnesty usually waives the taxpayers' tax liability. In 2016, Indonesia had run one of the biggest Tax Amnesty scheme in the world and managed to gather around US$9.61 billion as taxes in 9 months.

Introduction of amnesty in any fiscal year is to help a state treasury raise tax revenues, adding beneficiaries who have not declared their assets previously. The main purpose is to replicate the economy and encourage individuals and corporations to declare their wealth as it may arise. Under this scheme, the beneficiary just has to pay the tax on the total assets which are declared. States introduce this scheme when they believe that individuals are hiding their wealth from the tax authorities.

Tax revenues raised through these schemes are used for the well being of the state. Every individual and company has to report annually on their business activities in their tax return. Those who remain transparent in declaring their assets and liabilities to the tax authorities do not get inquiries or investigations. Tax amnesty is beneficial for those who have been hiding or not declaring their assets fair and transparently for years, who can make their assets legitimate by declaring them whether they exist within or outside the country. When such schemes are introduced, state revenue and tax departments give time to declare their wealth without any penalty. After it elapses, there will be a penalty in addition to the original tax rate.

Amnesty

Financial

There are schemes wherein the government provides financial relief to tax evaders. Under such schemes, the government decides to waive off all or part of the financial penalties which become due as a result of tax evasion. In some cases, the government only allows taxpayers to pay back the full sum in easy instalments over a longer time frame. Hence, investors gain because they can earn interest on the unpaid tax as well.

Legal

In some cases, legal immunity is not provided, so if the taxable income was generated from some illicit activity like drug smuggling or other criminal endeavours, the government could still prosecute the taxpayer.

On the other hand, there are some tax amnesty schemes that provide legal amnesty as well. These schemes basically promise that the government will simply close their eyes to the source of the taxable income as well. The government promises to not conduct any investigation or disclose any information after they receive the tax revenue, which is due to them.

Reasons

There are several possible reasons for tax amnesty.

Economic and financial

During the crisis period, financial difficulties of taxpayers as well as increased public expenditures may occur. Tax amnesties are considered necessary in order to collect at least some of the tax claims. It also helps relieve the taxpayers, who are unable to pay tax debts, and revive the market.

Political

Possibility of tax amnesty may be used by political parties to gain more votes when the next election period is about to come. Determination of the extent of the amnesty is entirely a political decision and is in the government’s power.

Technical and administrative

For resolving existing confusions, defective points of the system, and making radical changes on the tax system, liquidation of past periods may be necessary. It is also hard and administratively exhaustive to collect tax debt from taxpayers in financial difficulties. Tax courts have a heavy job workload and collecting taxes takes a long time. Tax amnesty is an easy and beneficial way to solve these administrative difficulties.

Negative effects

Many positive effects and reasons for tax amnesty are effects only in the short run. Tax amnesty have also many opponents because of the long-term effects on society. The main reason is that we must be all equal in terms of law and justice. Tax amnesty gives an advantage to those who break the law. People lose confidence in justice, and punishments lose their effectiveness. It may lead to decreasing morality and increasing tax crimes. Some of these negative effects may be eliminated with strict regulation and careful choice of who can receive tax amnesty.

Tax amnesty is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability relating to a previous tax period or periods and without fear of criminal prosecutions.

Countries

Australia

In 2014, in the first amnesty ever offered in Australia, thousands of rich Australians to declared billions of dollars in untaxed assets and income stashed in bank accounts in other countries like Switzerland. The vast majority of voluntary disclosures were related to income and shares.

Belgium

In 2004, the Belgian Parliament adopted a law allowing individuals subject to Belgian income tax to regularize the undeclared, or untaxed, assets they held before June 1, 2003.

Canada

Canada has a tax amnesty under both the Income Tax Act for income tax related offences and under the Excise Tax Act for GST/HST (goods and services tax/ harmonized sales tax) matters. The tax amnesty is referred to by the Canada Revenue Agency as the Voluntary Disclosure Program (VDP) and has its statutory authority under subsection 220(3.1) of the Income Tax Act and the sections 88 and 281.1 of the ETA which set out the rules for taxpayer relief applications. This relief is available for a 10-year period prior to the date of filing and covers unfiled tax returns and unfiled information returns such as offshore asset forms T1135 or T1134, as well as tax evasion in the form of unreported income or over claimed expenses or deductions. Eligible taxpayers will receive full penalty relief, will avoid any possible tax evasion prosecution, and may obtain some interest reductions.

France

In 1986, the government of Jacques Chirac decided of a tax amnesty for companies and individuals who had hidden profits or revenue in tax heavens. The companies and individuals who took their money back to France had to pay a flat 10% rate. More than 16 billion francs came back to France in 1986.

Germany

In 2004, Germany granted a tax amnesty in connection with tax evasion.

Greece

On September 30, 2010, the Hellenic Parliament ratified a legislation pushed through by the Greek government in an effort to raise revenue, granting tax amnesty to millions of Greek citizens by paying just 55 percent of the outstanding debts. In 2011, the European Commission requested Greece to modify its tax legislation as its tax amnesty was considered discriminatory and incompatible with European Union treaties.

India

Government of India allowed the people to declare their undisclosed incomes in Income Declaration Scheme, 2016 and pay a total of 45% tax for one time settlement. 64,275 disclosures were made amounting to ₹652.5 billion (US$9.4 billion).

Indonesia

After several tax amnesties program launched in 1964, 1984 and 2008, Indonesia has applied another tax amnesty in 2016. Finally, after 3 consecutives 3 months periods in 2016 and 2017, ended on March 31, 2017, repatriation commitment was Rp 146.6 trillion, but the realization was Rp 128.3 trillion or about $9.61 billion. While asset declaration was Rp 4,855 trillion from 956 thousands tax payers. The result is very successful. It is new world record, tumbles 2009 Italy tax amnesty program with Rp 1,179 trillion and repatriated Rp 59 trillion.

Italy

Italy introduced a tax amnesty in 2001 that came to be known as '' Scudo Fiscale'' ( en, Tax Shield), which was extended in 2003.

In 2009 the Italian tax amnesty subjected repatriated assets to a flat tax of 5%. In total around €80 billion in assets were declared, which resulted in tax revenues of €4 Billion. The Bank of Italy estimated that Italian citizens held around €500bn in undeclared funds outside the country.

Malaysia

It was introduced during Budget 2019 announcement on 2 November 2018.

Norway

Norway implemented a tax amnesty program during 2008–2016 for taxpayers who had undisclosed assets hidden abroad. The taxpayers who disclosed their assets did not face penalties or criminal sanctions. A 2022 study found that this led approximately 1,500 individuals to disclose their assets. Taxes paid by these individuals subsequently increased by 30%.

Pakistan

Pakistan introduced tax amnesty scheme in 2018 which yield $1 billion or Rs 121 billion tax revenues from individuals, Association of Persons & Corporations who declare their assets in this scheme.

Philippines

The Philippines introduced The Tax Amnesty Act of 2019 or the Republic Act No. 11213 which was signed into Law on February 14, 2019 with a Veto Message of President Rodrigo R. Duterte. The said Law was published on the Official Gazette on February 18, 2019 and took effect on March 5, 2019, that is, on the 15th day after the official publication. As a result, the Bureau of Internal Revenue which is the main collecting agency of the government, published the implementing rules and regulations on the availment of the tax amnesty, two of which are the Revenue Regulation No. 4-2019 : Amnesty on Tax Delinquencies which was issued on April 5, 2019 and Revenue Regulation No. 6-2019 : Estate Tax Amnesty which was issued on May 29, 2019.

Portugal

Portugal introduced tax amnesties in 2005 and 2010.

Russia

In 2007, a Russian tax amnesty program collected $130 million in the first six months. The Russian program was not open to anyone previously convicted of tax crimes such as tax evasion.

South Africa

In 2003, South Africa enacted the ''Exchange Control Amnesty And Amendment of Taxation Laws Act'', a tax amnesty.

Spain

In 2012, the Spanish Minister of Economy and Competitiveness Cristóbal Montoro announced a tax evasion amnesty for undeclared assets or those hidden in tax havens. Repatriation would be allowed by paying a 10 percent tax, with no criminal penalty.

United States

Many U.S. states have had tax amnesties. The City of Los Angeles collected $18.6 million in its 2009 tax amnesty program, claiming that the amount was $8.6 million more than was expected and that businesses saved $6.7 million in penalties. The state of Louisiana brought in $450 million from its 2009 tax amnesty program, three times more than what was expected, according to Republican Governor Bobby Jindal.

The IRS Criminal Investigation Division has had a longstanding practice of granting tax amnesty to taxpayers who have committed tax crimes, usually tax evasion. Following World War II, it was the administrative policy of the Internal Revenue Service to provide amnesty from criminal prosecution to taxpayers who voluntarily disclosed their underpayment of taxes. Although protected from criminal prosecution, such taxpayers still were subject to any civil penalties or interest that applied with respect to the delinquent taxes.

In a 2007 United States Senate bill that did not become law, a tax amnesty for illegal immigrants was proposed. The tax amnesty was supported by then-president George W. Bush and his Homeland Security Secretary Michael Chertoff.

On June 26, 2012, IRS Commissioner Doug Shulman said the IRS offshore voluntary disclosure programs has so far collected more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures made under the first two programs.

Further reading

* Bornukova, K., Kruk, D., Shymanovich, G., & Tserlukevich, Y. (2014).
Tax Amnesty
' (No. 21). Belarusian Economic Research and Outreach Center (BEROC).
*

References

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Tax administration
Tax evasion
Amnesty laws