Speaking at a press conference following a meeting of the Cabinet of Spain on January 5th, the deputy Prime Minister of Spain Soraya Saenz de Santamaria confirmed that in 2012 the government will look to significantly cut public spending, and begin a renewed crack down on tax evasion carrying out a higher number of inspections of business places and closely scrutinizing businesses’ financial records.

The investigations conducted by tax authorities will pay particular attention to the payroll records of businesses, hoping to catch out employers paying employees in cash. Spain currently has an unemployment rate of approximately 21 percent, and tax authorities are expected to find a high number of individuals who claim to be unemployed but are taking on unrecorded work.

Soraya Saenz de Santamaria said that the ruling Spanish People’s Party expects that the new measures will lead to the recovery approximately EUR 8.17 billion previously unpaid personal income taxes and corporate income taxes.

The government will also look at reducing the size of the underground economy in Spain by instating restrictions on the use of cash in transactions exceeding a preset threshold. It is hoped that such a change will reduce the number of purchases and payments that are not recorded or taxed. Current estimates indicate that the underground economy in Spain may be worth as much as 25 percent of the official GDP.

Soraya Saenz de Santamaria also said that the government will look at reducing the country’s high budget deficit by closing a number of government owned companies. She did not reveal which entities will be closed, but said that 505 government companies are currently being considered for closure.

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With a little more than a week to go before the June 3rd reveal of Pakistan’s latest government budget plan, the Federal Finance Minister Dr Abdul Hafeez Shaikh has given further indication on the government’s intentions to improve tax compliance in the coming fiscal year. At a press event held in Lahore on May 22nd, the Minister said that new efforts would be expended to make an equitable tax system, with more attention paid to stamping out tax evasion.

The Minister said that the Federal Board of Revenue (FBR) has already completed work to identify over 700 000 high-income earners who are not paying any taxes. In an initial step to help combat such behavior, the Board has issued notices to 55 000 of the identified individuals. Throughout the coming fiscal year, the FBR and all relevant tax authorities will conduct in depth investigations of the systematic non-payments.

The FBR would also overhaul the national sales tax regime in order to increase government revenues, and create a self-sufficient stream of funds for national development projects. With the reveal of the upcoming budget, the government intends to remove several exemptions which are currently available in the sales tax system. It is also intended that the sales tax will be expanded to encompass a broader range of services and goods. The move would be beneficial in making headway in stamping out the underground economy.

Abdul Hafeez Shaikh said that it is important to the government not to place extra tax burdens on already compliant taxpayers. Instead, tax authorities will aim to quell non-compliance, and reign in the unofficial sector of the economy of Pakistan. The strengthened pledge to fight tax evasion is expected to yield approximately PKR 120 billion (approx. USD 1.39 billion)more in tax revenues in the next fiscal year.

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The Directorate General of Central Excise Intelligence (DGCEI) of India, an agency within the Central Board of Excise & Customs that is charged with investigation of tax evasion, released on May 19th its performance results for the 2010 fiscal year, highlighting the deeply rooted problem of tax evasion in India.

During the 2010 fiscal year the DGCEI registered 1 190 separate cases of evasion of federal excise duties and service tax. The number of investigations is a 29 percent increase over the previous year, when only 850 investigations were conducted. In total, the latest cases concerned evasion of approximately INR 13.56 billion (approx. USD 302.01 million) in evaded central excise duties, and an additional INR 43.52 billion (approx. USD 969.28 million) in service taxes. The total amount evaded is 15 percent higher than in the previous year. Investigations conducted throughout the period have led to approximately INR 4.31 billion (approx. USD 95.99 million) in unpaid taxes being recovered so far.

According to the DGCEI, the most commonly seen methods of avoiding services taxes included gross undervaluation of taxable services, illicit manipulation of the input credit schemes, and misuse of the reverse charge mechanism. Only a small portion of the investigations conducted featured simple non-payment of services taxes. Excise duties were commonly evaded through unwarranted use of exemptions written into the tax system, significant undervaluation of goods liable for excise tax, non-payment of taxes owed, and misuse of the input credit system.

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On March 14th the Department of Treasury of Italy released a statement saying that in 2010 national tax revenues rose by 0.3 percent compared to the previous year, equivalent to EUR 1.3 billion. Overall, in 2010 tax authorities collected EUR 403.3 billion of taxes.

According to the department, the rise in tax revenues is largely due to a 32.4 percent jump in tax collection from import duties and a 4.4 percent increase in Value Added Tax (VAT) collections. Revenues arising from fines and fees following audit increased by 17.9 percent. Revenues from inheritance taxes, gambling taxes, and tobacco taxes fell overall by 0.4 percent.

Figures in the statement showed that tax revenues had risen by 3.3 percent over the month of January, in comparison to the same period in 2010. The revenues figures were aided by a series of one-off taxes that were collected in January, although even without the extra taxes overall collection levels were still 3.2 percent above the previous year.

The statement suggested that in 2011 the government would pursue increased tax revenues through concentrated efforts to fight tax evasion. It is estimated that anti tax evasion activities carried out by the government in 2010 led to the recovery of approximately EUR 25.4 billion in taxes, while in 2009 the figure was only EUR 9.1 billion. In May 2010 the Italian Prime Minister Silvio Berlusconi said that nearly one quarter of the national economy goes untaxed, representing up to EUR 120 billion in tax revenues lost annually.

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On February 23rd the HM Revenue and Customs (HMRC) released an online statement, revealing that several members of a UK based gang have been sentenced to jail time for their part in the laundering of GBP 48.6 million for criminal gangs in the UK, including the UK’s most prominent marijuana smuggler, between May 1st 2007 and September 30th 2008.

The investigation and prosecutions were centered around the website R2PK, which offered online money transfer services. The site was run by Tanveer Jaffery, the alleged ringleader of the laundering gang, who later came to be dubbed “Mr. Persil”. While the website provided a legitimate money transfer service to South East Asia, it was also used as a means to funnel large amounts of cash on behalf of organized criminal gangs throughout the UK.

The HMRC revealed that the website, which advertised cash pick up services, would be used to organize a courier who would receive the money and deposit it across several local banks. The individual deposits were kept below GBP 25 000, in an effort not to draw the attention of tax authorities or arouse suspicion at the banks. Once the criminal gang who ordered the laundering was ready to receive their money, one of Tanveer Jaffery’s couriers would be dispatched to withdraw cash from a bank, in the guise of a typical fund transfer.

To ensure the relative security of the cash transfer, the gang would use codes generated from the serial numbers of random five pound notes. The codes were distributed to appropriate persons via text message by Tanveer Jaffery through a routed international mobile network. The bank note used to generate the code would also serve as a de facto receipt for the transfer.

Tanveer Jaffery has been sentence to 10 years in jail. Naveed Ahmad, another organizer in the gang, was sentenced to six years. Mohammed Umer Farooq and Syed Yasir Abbas Shah, the two most prominent couriers in the operation, were both sentenced to four years in jail.

Photo by HowardLake