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UK Considers A Tax Amnesty

by Jason Gorringe,, London

24 December 2001

Britain's Department of Trade and Industry is said to be considering a scheme to offer a tax amnesty to small businesses and individuals, although any such scheme would have to be approved by Chancellor Gordon Brown and the Treasury, where it might run up against resistance from traditionalist 'beggar-my-neighbour' attitudes. Tax amnesties, which have been used in many countries including Italy, Ireland and the US, typically offer a window during which people can reveal past untaxed income and pay some or all of the tax on it without incurring penalties or fines.

Amnesties run up against resentment on the part of honest taxpayers, and risk alienating them from the tax system when they see that tax cheats have in effect been rewarded for their behaviour. But high-tax countries already face tax evasion on a massive scale, with the 'black' economy ranging from 10% to 30%, and an amnesty does at least recover some of the unpaid tax.

Several EU countries have offered amnesties to undeclared currency holdings in the run-up to launch of the euro. According to Italy's central bank, the country's pre-euro scheme to entice illicit overseas funds back home had a successful first month in November. The Bank's head of fiscal services, Carla Panzeri said that large sums had been repatriated, including one individual payment of 50 million euros, although he added: "The fiscal shield is not an amnesty. It does not mean that we are ending any legal action currently underway." But returning money is charged a tax of just 2.5%. The Bank thinks that up to 500 billion euros is illegitimately sitting abroad in tax havens, and hopes that 20% of it might flow back under the scheme, which will run until February 28th, when the lira ceases to be legal tender.

A senior DTI official said: 'When they first launched (an amnesty) in Ireland they got a tremendous response. They collected several hundreds of millions. The one in America was also very effective at bringing people into the tax net.'

The Treasury was noncommittal when asked to comment, but pointed out its existing Tax and Benefits Confidential Helpline, which allows individuals to discuss their tax problems on an anonymous basis, and is thought to help in bringing tax evaders back into the fold by reassuring them about the treatment they will receive when they 'confess'.

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