HMRC take note – the IRS is working on pre-crime technology.

by | Apr 12, 2011 | civil liberties, Economic Intrigue, Just plain weird, UK Misery, Wasp likes these, Well I never. | 2 comments

An interesting post from ZeroHedge about the latest IRS (US tax people) initiative to maximise tax revenues :

In remarks to the National Press Club last week, an IRS spokesman unveiled the agency’s vision for the “look forward” model in which most of the pertinent reporting information for the average taxpayer (W2, 1099, mortgage interest etc.) would be submitted to the IRS well in advance of the individual deadline.

After a massive upgrade in technology, the IRS would be able to pre-calculate what it expects to receive in taxes and instantly reject any return that doesn’t comply with its determination.

As ZeroHedge notes, just like The Minority Report.

Whilst I am sure that HMRC would love to do this, they don’t seem capable of running a pissup in a brewery let alone pre-calculating tax returns :

Under the rules of the A19 Extra-Statutory Concession, HMRC must write-off bills for anyone who could ‘reasonably have believed’ their tax affairs were in order.

But last night Revenue chiefs signalled they would resist a flood of claims, saying the majority would not qualify for the loophole.

Senior MPs are calling for an inquiry after revelations that six million people paid incorrect tax – potentially landing cash-strapped pensioners and families with bills for thousands of pounds.

Some 2.3m have paid too little tax over the past two years and of the 1.4m who owe more than £300 to the Revenue, the average bill is £1,428. Many will owe far more.

As for what makes a good tax system, the article lists some of the worlds better ones :

Deep down, I think these people simply want to try and make things more efficient. Pre-crime is not the way to go.  There are a number of countries that have incredibly successful tax codes, and there are common themes in all of them:

1) Keep it short. The Baltic countries are a great example of this– the entire Estonian tax code is about 70 pages, roughly 1/1000th the size of the US tax code (which is still prone to so much interpretation). It takes about 15 minutes to fill out an Estonian return, and you can do it online.  In the Maldives, it’s even easier.

2) Keep it simple. When you have a tax code that’s so complex it has given rise to a multi-billion dollar preparation industry, you have a problem. There are dozens of different forms at the IRS, and over 20 versions for the 1099 alone! This is a system that is prone to massive flaws and a great deal of contradiction.

Hong Kong is a great example of a simple system. Taxes are levied at a flat rate of 15% based on the “territorial principal” that only income derived from Hong Kong is taxed. There is no capital gains tax, no VAT, no estate tax, etc. And yet, the biggest problem the Hong Kong government faces regarding taxes is how to give away their massive surplus.

3) Keep it low.  When you make it easy and painless for people to pay taxes, it removes most of the incentives for them to cheat. In Singapore, tax rates are among the lowest in the world with a maximum rate of 20%. The capital gains rate is zero. The corporate rate varies from 0% to 17% (and keeps falling).

Under these circumstances, why cheat? By keeping rates low, the government is removing any incentive to engage in complicated (and costly) tax avoidance techniques. From a cost/benefit perspective, it’s much easier to comply when rates are low.

4) Keep it friendly. Creating an adversarial relationship with taxpayers doesn’t do anyone any favors. One of the key themes of the world’s most successful tax regimes is that they do not operate like a police agency that’s out to get people. This is a massive hurdle for the IRS to overcome.

Perhaps the polar opposite of this is Switzerland, where tax evasion is considered a civil matter, not a criminal matter. In Switzerland, the local cantonal tax authorities actually compete with each other for your business, rather than sticking you up for cash under penalty of imprisonment.

Just a shame that the UK seems to be condemned to ever increasing tax legislation to block loop holes and avoidance when a simpler system would save millions in administration and probably bring in a lot more tax in the first place.

That wouldn’t really suit the creation of many thousands of civil service jobs though to adminster the current system now would it?

2 Comments

  1. Angry Exile

    HMRC do do this a bit, or at least they used. There was always an assumption involved in income tax for self employed types in that when you made a payment it was half in arrears and half in advance, and the advance part took no account of income that might be seasonal – e.g. I imagine a roofer would earn less in the rainier months with shorter nights than during dry seasons with long days, but the taxman doesn’t care about that. The real annoying part of that for me was because of how the dates turned out I had to give the bastards a big, fat cheque just a couple of months before I was going to leave the country permanently. And then piss about getting money back again. In fairness to them I overpaid NICs and they were kind enough to send be another cheque that I wasn’t expecting all the way to me here in Australia. I was extremely impressed by that, and would have been even more impressed if someone had given more thought to sending a cheque made out in Sterling to someone who banks in Aussie dollars and would have to pay extra to pay the bloody thing in. It seemed too much trouble to remind them that they still have UK bank details on file for me and could have transferred it to a perfectly valid UK account.

    • Wasp

      AE – interesting to hear from someone who has had some success with HMRC. Nearly all my dealings have been with moronic drones who have buggered up the mess they had already made such as the escalation of a non-existent tax demand for 9 pence that took me half a dozen calls and letters to demonstrate to them that it was already paid three years previously.

      I think half the problem is getting through to someone who is competent and who still cares about customer service – not just with HMRC but seemingly most government departments. Most of them seem to be content to read from the script and avoid anything that may involve initiative or helpfulness.