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Members of parliament and potential candidates have embarked on a which hunt, assisted by part of the media, to trace and root out the dreaded tax evaders who are depriving the state of millions in lost tax revenue. So, what are these blood-sucking criminals (whether real or imaginative) supposed to be doing? Are they funneling money out by the plane-load, just as the Milosevic millions made it into legitimate bank accounts here? Are they packing cases of cash and taking them off to Caribbean or African jurisdictions where no one will find them?
As far as we know, Cyprus government officials are not corrupt (by Asian or African standards) and are supposedly doing a good job with tax collection. The problem arises when companies face a dilemma of paying a disputed tax and never being able to challenge or reclaim the amount, or finding creative ways to park profits in loss-making operations simply to avoid giving the moral satisfaction to the Tax Man.
A state of unequal benefits has prompted private individuals and family-run companies to cry out, “Why should we pay taxes when we have no benefits, such as the civil servants do?” This creates a chain of growing mistrust towards the government and people seek ways to ‘dupe the system’.
The same argument is true of blue-collar professionals (plumbers, electricians, etc.) who work hard to make a living and then pay a fortune in taxes, while white-collar professionals (doctors, accountants, lawyers, etc.) hire experts to show them how to avoid paying taxes.
It has been suggested that the amount in unclaimed taxes in Cyprus could reach as high as EUR 1 bln, which begs the question, ‘Why was it never collected?’
Two of the best things that happened to Cyprus were the abolition of the onshore-offshore discrimination and the subsequent introduction of an affordable flat tax rate for all, and the abolition of tax discounts and raising the personal taxable amount to about 19,000 a year. What these reforms failed to do was narrow the gap between taxes paid by private sector workers and civil servants, with the first group losing many benefits and the second class losing nothing as they enjoy other perks as well.
For this administration to gain the trust of all taxpayers and punish the true tax evaders, it must first remove the two-class system of taxable employees, while introducing the occasional tax amnesty by groups of interest as was the case of the successful amnesty a few years ago and the property amnesty that could generate millions of fresh tax euros for the state.
