2015 Activities

Tax Evasion: A blatant crime goes unpunished

Tax Evasion: A blatant crime goes unpunished

AT the roundtable session held in AMANCoalition for Integrity and Accountability headquarter in Ramallah, AMAN discussed the phenomenon of “tax evasion in Palestine” and the persecution of the perpetrators. The roundtable session has been held in response to the inadequate tax evasion crimedetection and prosecution in Palestine.

After welcoming the attendees, AMAN’s representativesgave an overview on the tax evasion phenomenon in Palestine, and emphasized the need to know the mechanism for dealing with tax dodgers as well as the integrity level of the tax departments in addressing tax evasion issues.

Tax Evasion in Palestine: An Undefined Crime

The legal advisor for AMAN presented a paper on the legal dimension of the tax evasion in Palestine. He highlighted the fact that the Decree by Law  No. (8) of 2011 does not define the crime; however,  it defines the penalties imposed on some forms of tax evasion. This crime carries up to a three-year prison sentence and/or fines up to 10000 NIS, yet not less than 1000 NIS.
He also emphasized that the lack of transparency of the tax management work environment and the procedures increases the chances of corruption. Tax management corruption is an a global issue that results from the personal relations and interest between corrupt tax officers and taxpayers or their auditors, and particularly when tax officers are granted wide sphere of privileges.
Dodger Prosecution Obstacles.

Furthermore, attendants discussed the challenges that hinder tax fraud prosecution . They ascertained that legislative obstacle is the first and foremost stumbling block. Palestinian Legislation does not clearly criminalize tax evasions,  unless they are associated with a public servant, or in case a public employee (or any employees subject to the Anti-corruption Law No. (5) of 2015) is involved.
Attendants pointed to the fact that all inherited tax laws (e.g. Property Tax Law of 1954)in Palestinethrowback to various historical eras.  Moreover, the Decree by Law  No. (8) of 2011 does not define any procedures to prevent interest conflicts; especially, when tax officers leave their jobs to work in the private sector. Laws are  not perspicuous in preventing conflicts of interest. Unfortunately, there is not an item stipulates that public tax management employees should not work for private sector organizations in order to avoid interest conflicts.

Participants also noted that the Law on the Encouragement of Investment in PalestineNo. (1) of 1998, and its amendments are being manipulated in some cases. This law confers tax exemptions and reductions over certain a period of time (i.e. from 5 to 21 years).  Therefore, investors may transfer the project ownership to their relatives to get another tax exemption and reduction, given there are no Laws define such an act as a circumvention.

The Variety of Tax Department Aggravates the Complexity of the Problem

The variety of laws governing taxation in Palestine confuses taxpayers who cannot grasp the reason behind such array. Moreover, the various tax administrations coupled with the heterogeneous taxes paid by the taxpayers worsen the tax evasion issues.

The agencies entitled to collect taxes and fees represent another hitch. In this context, Mr. Nadir Aslahat, Internal Audit Manager at MoF, said “the inadequacy of the human and physical resources, and technical suppliesleads to the lack of coordination among the various administrations on one hand, and between them and other government institutions on the other hand. In addition to the inadequacy of the field visits organized by the tax officers as well as the disproportionality of the number of tax officers (i.e. 88 tax officers) and the number of the files (i.e. 112000 as estimated by the MoF). Not to mention the poor follow-up and monitoring for the files of the taxpayers in order to detect phantom tax files.

Additionally, the participants discussed the role of the legal accountants in the tax evasion process as well as the absence of official evidence-based statistics demonstrates the prevalence of tax evasion. Besides, the suspension of the formation of tax tribunals adds to the tax evasion issue.

30% of the Registered Taxpayers Paythe Required Taxes

Representatives from the relevant official institutions, Public Prosecution, Costume Unit, VAT and Income Tax departments at the MoF, the private sector, AMAN’s staff have attended the roundtable discussion and tackled the different types of dodgers (i.e. registered and unregistered taxpayers). Only 30% of the registered taxpayers pay the taxes and fees. The income tax revenues are limited to 7% of the overall revenues. Furthermore, they have reiterated the significance of the tax justice and the importance of a decentralized tax authority.

Interpretation of Legislation is the Key Recommendation

Finally, the participants  have put forward several recommendations, including:
• Amending and interpreting of relevant laws to be the first and the foremost priority. Laws should clearly define the crime, its forms and punishment, and the competent authority in order to surmount the challenges imposed by the existing legislations.  The participants also agreed that administrative penalties should be imposed on the public employees involved in tax evasions or other related violations.
• Monitoring mechanisms should be ensured to avoid manipulation, exploitation and collusion.
• Relevant staff should be distributed among ministries on the basis of the burden of the various ministries.
• Relevant ministries should be interconnected to streamline the workflow.
• Logistics should be provided to help employees accomplish their jobs and feel satisfaction.


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