Tax Evasion — A Crime in Itself: The Relationship with Money Laundering

Published date01 April 1996
DOIhttps://doi.org/10.1108/eb025769
Pages161-168
Date01 April 1996
AuthorMartyn Bridges
Subject MatterAccounting & finance
Martyn Bridges
TAX EVASION
Tax Evasion A Crime in Itself: The Relationship
with Money Laundering
Journal of Financial Crime Vol. 4 No. 2 Tax Evasion
This article considers briefly the general back-
ground to tax evasion, why it is a crime and the
relationship between tax evasion and money laun-
dering.
A BRIEF HISTORY OF TAX EVASION
Taxation has been a curse of the human race since
at least early Roman times. It would be fairly safe
to assume that tax avoidance and evasion were
invented within hours of the first tax being intro-
duced. Most people dislike paying tax and many,
given the choice, prefer to avoid (or evade) pay-
ment, in whole or in part. Unfortunately, this is
human nature and there is no likelihood that it
will change.
A few years ago, an Inspector of Taxes could
walk into the store of taxpayers' files, pick one out
at random, apply thorough investigative techni-
ques,
and, almost certainly, obtain a result in terms
of
a
settlement for back taxes together with interest
and penalties. Today the selection is probably done
by computer in a negative form of the National
Lottery (!) and the new regime of self-assessment
with random audits authorised by statute is almost
upon us.
To some extent, the amount of taxes avoided or
evaded will fluctuate in line with the level of taxa-
tion under any particular regime. However, while
it is fair to say that tax avoidance and evasion will
increase over what may be regarded as the 'norm'
when tax rates are high, it is unlikely that they will
decrease dramatically when tax rates are low. It is
human nature to avoid or evade taxation whenever
the opportunity arises, no matter what level of
taxation may apply.
The most significant fraud
Without doubt, losses to governments from tax-
evasion far exceed total losses from all other forms
of economic crime. This is inherent in the fact that
few criminals believe in paying tax on the profits
of their criminal enterprises. Indeed, it is almost
impossible for them to do so without disclosing
the nature and extent of their illegal activities to a
tax authority for fear that the authority will dis-
close their criminal activity to other state organisa-
tions.
In fact, the UK civil courts have long held that
the profits of most illegal trading activities are
chargeable to tax and the fact that they are
obtained illegally does not provide any exemption.
Some statistics
The black economy is usually a term which applies
to the non-taxpaying community rather than those
involved in other forms of economic crime such as
commercial fraud and drug trafficking.
While, obviously, no reliable figures are avail-
able,
it is thought that in the US the black econ-
omy is equivalent to between 8 and 10 per cent of
the gross domestic product (GDP). In Germany,
that figure approximates to 10 per cent and Italy,
Greece and Spain are thought to have black econo-
mies amounting to as much as 20 to 30 per cent of
their GDPs. In Russia and other former eastern
bloc countries, it is thought that the black econ-
omy may amount to as much as 50 per cent of the
GDP.
According to officials in the UK, the black econ-
omy is equivalent to between 6 and 8 per cent of
GDP,
about £50bn. In the unlikely event that the
black economy in the UK amounted to as little as
5 per cent of national income, the loss in tax reve-
nue would exceed £10bn per annum, and in the
author's opinion, that figure is a gross underesti-
mate.
In their report for the year ending 31st March,
1995,
the Inland Revenue stated they had brought
into charge additional tax of £6.138bn1 from com-
Page 161

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