Thursday, June 03, 2010

False economies undermine tax justice

There's much truth in the old adage that rich people avoid taxes while ordinary people evade them. Not surprisingly, revenue authorities hate the hassle of litigating against the big fish -- its time consuming and very expensive -- so they target the smaller ones. And since ordinary people and small businesses have less access to expensive tax lawyers and tax accountants, they are more likely to make mistakes and/or seek advice from revenue officers.

Which raises the question of why did the last U.K. government choose to shed around 25,000 revenue staff and close around 200 regional offices? In an article in today's Guardian newspaper, columnist Zoe Williams struggles to make sense of what appears, on the face of it, to be a massive own goal by central government:

Would-be evaders and avoiders will be rubbing their hands at every redundancy. For the low paid, however, the impact isn't that they won't be chased for tax, but rather that they'll have nowhere to go for advice. If they are not to be automatically sent tax returns, if there isn't the manpower to check each tax bill, people need to be able to drop into a tax office and ask for help. If the office is 250 miles away, it might as well be on the moon.

Citing research from tax expert Richard Murphy that the UK tax gap could be as high as £120 billion a year, Williams detects a sense of cavalier disrespect within the hierarchy of Her Majesty's Revenue & Customs for the citizens they should aim to be serving:

They do not think of it as their responsibility to deliver a fair tax system: their resources are disproportionately geared towards the corporate sector; their call centres are undermanned; they don't reply to correspondence; they could not on any level call theirs a usable system for the average taxpayer.

This is a tax justice issue. This blogger frequently meets people running small businesses (farms, guest houses, stores, IT firms, you name it) who complain about the complexities of the tax system and the lack of support from HMR&C. Such people simply cannot afford the stupendous fees charged by the tax avoidance industry, which is largely geared to the needs of big business. Typically they do not want to avoid anyway, they simply want to comply with the tax code and take advantage of the exemptions on offer (which, by the way, does not involve tax avoidance).

The cuts imposed by the last government have reduced the quality of service due to the public. They will also, inevitably, cause revenue losses far exceeding the cost of providing a fit and proper service. Even those who dispute Richard Murphy's tax gap calculations recognise that reducing revenue effort is a false economy. Unfortunately the victims of this penny-pinching are more likely to be poor people and small businesses than the sophisticated tax avoiders with their teams of lawyers and accountants. Justice this ain't.


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