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2011.03.08

Recommendation for Japanese Tax Amnesty

  • Megumi Kashiwagi
  • Research Director
    Megumi Kashiwagi
  • [Expertise]
    Public Finance and Social Security

  The US states have irregularly implemented tax collection campaigns called "Tax Amnesty" and have created good results. "Tax Amnesty" is the system that tax delinquents and tax evaders pay tax which they haven't paid in the past within a "Tax Amnesty" period (ordinarily 2-3 months) and the state's tax agency give a tax break to absolve all or part of penalty, fine and delinquency charge. US citizens don't know when a "Tax Amnesty" starts; they can't evade delinquent tax in advance.
 Since Arizona State implemented "Tax Amnesty" in November 1982, 48 states have implemented 110 times to date. The Louisiana States and the New York State have implemented 5 times. In 2010, many states implemented the "Tax Amnesty" and this is possibly due to it's because of the world recession. For example, in January, New York State. In April, Massachusetts State and Pennsylvania State. In June, New Mexico state. In July, Florida State and Nevada State. In August, District of Columbia. In September, Kansas State and Louisiana State. In October, Illinois State. The amount of tax collection was 303.7 million dollars in Louisiana, 261 million dollars in Pennsylvania and 20.8 million dollars in Washington D.C.
 Data of tax collection was published through "Tax Amnesty" but Costs were not published. Therefore I interviewed tax agency staff of six states who implemented the "Tax Amnesty" in 2002 about "Tax Amnesty" costs to because I realized the cost-benefit ratio of "Tax Amnesty". I realized the cost-benefit ratio was considerable (Table 1). South Carolina State targeted 127,500 people (equivalent to 450000 accounts) and collected 66.2 million dollars whereas costs were 1.8 million dollars. Massachusetts State collected 134 million dollar and Costs were 1.5 million dollars including advertising costs. Maryland State collected 40 million dollars while the amount of tax delinquency was 260 million dollars (300,000 people). Therefore the percentage of tax collection was 15.38%. The cost was two million dollars. The breakdown was: advertising costs one million dollars included temporary workers' wages 400,000 dollars. Connecticut State collected 95 million dollars; costs were one million dollars. Missouri State collected 73 million dollars. Costs were mailing costs to tax delinquents 96,000 dollars, programming costs 242,000 dollars. Kentucky State collected 44 million dollars. Combination Salary, technical costs and advertising costs were three million dollars and IT costs were 950,000 dollars.


Table 1: Cost-benefit of US States' Tax Amnesty in 2002  ($million)
South Carolina Massachusettes Maryland Connecticut Missouri Kentucky
Collections 66.2 134 40 95 73 44
Costs 1.8 1.5 3.4 1 0.35 4
Cost-benefit 36.8 89.3 11.8 95 208.6 11
Resource:Result of email interviews of six US States.

  Thus, "Tax Amnesty" has been well-practiced in the US, it is a system to encourage tax delinquents and tax evaders to pay tax voluntarily. Why was it started? Because many tax studies concluded that developing tax compliance and voluntary payment of tax is more effective than control and regulation. In 1980s Tax agencies had generally improved audit and penalty, in the late 1980s, as soon as IT system reliability increased, a vision was propagated that higher reliability of tax administration thorough changing State tax system and developing tax education effected tax compliance. Recently, it is said that improving voluntary tax compliance is efficient. To date Japan did not sufficiently emphasize the advancement of tax compliance. If tax delinquents and tax evaders voluntarily pay tax, costs of tax collection naturally decrease. There is not currently enough tax collection staff in Japan. I therefore recommend Japan introduces systems which promote voluntary payment in order to collect tax efficiently.
 Details of "Tax Amnesty" differ by state. Setting tax items also are free. Many states' major emphases are as follows;
●The success of "Tax Amnesty" depends on advertisement. We should use a lot of media such as TV, radio, newspaper and so on. We also should make website and provide information broadly to citizens as it is necessary for citizens to understand the "Tax Amnesty" system.
●We need to collect accurate information of tax delinquents in advance.
●It is important to collect staff and train them for rapid response services. Tax agencies need to hire temporary worker because staff have not only regular work but also "Tax Amnesty" work during the amnesty. They should make manuals for swift response and should study laws, regulations and procedure. A customer support contact center is also necessary for telephone inquiries.
●Changing IT system: It is necessary that IT systems are modified to respond quickly for "Tax Amnesty". It is especially necessary to change IT programs for calculating new penalty and delinquency charges and checking the participation status of "Tax Amnesty" for tax payers. It is also important tax payers are able to pay tax by credit cards online.
●Alliance with outside collaborator such as lawyers and advertising agencies.
 I took the domestic "Tax Amnesty" as an example. The US and some European countries recently introduced it for offshore banking business such as tax haven. Its concept is that if citizens get back money from overseas, they are not guilty of tax evasion. Italy collected 80 billion euro in 2009. We therefore realize "Tax Amnesty" is an effective policy domestically and abroad. I think it is worth discussing the introduction of "Tax Amnesty" in Japan.

 

Reference
Guy Dinmore ' Italy tax amnesty yields record €80bn', Financial Times , 23 December 2009 http://www.ft.com/cms/s/0/35dfa00a-efd9-11de-833d-00144feab49a.html#axzz1EeLxYBqr (accessed February 22 2011)

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