At its meeting with the Joint Committee on Jobs, Enterprise & Innovation, ISME, the Irish Small & Medium Enterprises Association, has called on the Government to introduce a tax and social welfare amnesty for individuals to allow them to legitimise their ‘hidden economy’ tax/earnings status. The Association also called for subsequent zero tolerance, tougher sanctions and harsher penalties for those who avoid taxes on goods and services. At a time when black economy is costing in excess of €5 billion, the initiative will facilitate those who have the potential for maintaining a legitimate business and would remove unfair “competition‟ and level the playing field for the compliant SME business trading legitimately.
According to ISME Chief Executive Mark Fielding, “While it is difficult to put an actual figure on the costs of the black economy, international estimates suggest that in Ireland it amounts to 16% of GDP, which would equate to €25bn this year and the figure could be much higher. The amount of lost taxes is conservatively estimated at €5bn, which would go a long way to reversing the current exchequer revenue shortfall”.
So many householders are increasingly more resentful of their role models, the politicians, bankers and auditors, to name but a few, who have fiddled, evaded or not paid their proper tax, while the citizen suffer increased income tax, universal social charges, household property tax on reduced wages. No wonder these people are angry and refusing to deal with service providers unless they agree a “no tax” or “cash only” price.
“The ‘nixer’ culture, in particular, is very much alive and well and there has been a definite shift towards a ‘cash only’ shadow economy. This is particularly evident in the construction and maintenance sectors, where there are increased incidences of ‘jobs for cash’, completely undercutting legitimate companies, who in many instances report that potential clients are demanding that they pay ‘off the books” to save VAT, continued Fielding
The implications arising from the hidden economy are substantial and wide reaching (including employment, government taxes and services, and general society). There is a need to raise awareness, to highlight the costs to society, to address attitudinal and cultural factors that mean that many turn a blind eye to illicit activities. We think that a whole of government commitment to combating the problem would be demonstrated if an inter-departmental approach was taken to developing and promoting an awareness campaign that would deliver a clear, yet comprehensive message.
The Association presented its twelve point plan to the Joint Committee with emphasis on the urgency of action and the need to stamp out black economy trade through conversion to legitimacy, national awareness of the damage done and zero tolerance subsequent to an amnesty.
1. The introduction of a tax and social welfare amnesty would allow for individuals to come forward for a defined period and legitimise their tax/earnings status on the basis of forgiving the past and wiping the slate clean.
2. Develop and implement an awareness/advertising campaign to communicate the issues and to highlight the positive impacts of a reduction of hidden economy activity on the Irish economy, jobs and society, and also the negative consequences of dealing in the hidden economy for the consumer personally. The work of the Hidden Economy Working Group should be promoted and supported
3. A radical review of the current taxation and social welfare system to ensure that the ‘tax wedge’, the monetary difference between being gainfully employed and claiming social benefits, is changed.
4. Tax incentives should be offered to home owners who use tax compliant, verifiable trades people.
5. Many services for cash are carried out by people in commercial vehicles. Introduce a mechanism that ensures that information provided to the Gardaí on the taxing of commercial vehicles, ‘Goods Only Declaration’ is validated as a matter of course.
6. A number of initiatives have been put in place to deliver on the Revenue Commissioners Strategy on Combating the Illicit Tobacco Trade (2011-2013). Increased emphasis is needed to ensure the risk of detection is further enhanced. Increase awareness among retailers of the hot-line and manage expectations in terms of the confidential nature of the service.
7. Introduce container scanners at Irish ports where the volume and frequency of container traffic justifies the investment.
8. Harsher judicial penalties should be imposed on those caught operating in the black economy.
9. Encourage compliance at the earliest stage of the start of the business. Often tax issues are perceived as onerous and complex. As a consequence, businesses can either inadvertently become involved in operating illicit activities in the early stages of their establishment; or, having got into bad habits, continue to operate at least part of their business operations “under the counter‟.
10. Revenue to make visits to new traders for educational and risk assessment purposes. Encourage firms to use the existing system to request a visit from a Revenue official following tax registration
11. Review the ‘Starting in Business – A Revenue Guide’ to identify ways in which the content could be made more accessible to the owner/manager and to non-accountants (i.e. written in Plain English).
12. Rebrand relevant guides and materials as a Start Right initiative and use a variety of channels to make the guide available including: CEBs, BICs, Banks, enterprise agencies, business organisations, Local Authorities, solicitors, accountants, libraries, schools, universities/colleges, etc.. Use company registration/VAT registration as a trigger to issue the Guide. Integrate the Start Right Guide as part of the Start Your Own Business Courses.
“The ISME position on the Black Economy is that a reduction of the shadow economy can be achieved using various channels the government can influence. The main challenge still is to bring shadow economy activities into the official economy, so that goods and services are still produced and provided at an economic cost while the government gets additional taxes and social security contributions” concluded Fielding.