How much tax revenue is lost each year as a result of noncompliance? How much of this lost revenue is from the richest taxpayers? How do the rich avoid paying taxes and why does it matter? This chapter considers these basic and important questions. The answers explain our motivation for writing this book and provide a starting point for the arguments that follow. This discussion also begins to explain why this book focuses on high-end tax noncompliance as a distinct challenge for the tax system. To answer these questions, we begin by describing exactly what we mean by tax noncompliance. The discussion then presents research findings on the scope of tax noncompliance and how it is shared across the income distribution. It then explains how high-end taxpayers can often avoid paying the taxes they owe by taking advantage of strategies that are not available to low- and middle-income taxpayers. Finally, we discuss why high-end noncompliance is harmful to the tax system, and why policymakers should treat it as a pressing challenge.

This chapter turns to the structure of the tax compliance system and how it attempts to address high-end noncompliance. It begins by situating the tax compliance rules within the broader tax system. The discussion considers what they share with all tax rules and what sets them apart. The following sections begin a more detailed dive into the structure of the tax compliance system. After addressing what motivates taxpayers to comply with the tax law, the discussion considers the main components of the tax compliance system, and how these components leverage taxpayer motivations to improve compliance. With this important context on the tax compliance system established, the discussion then returns to the challenges of high-end noncompliance. The final part of this chapter describes the two most prominent approaches in current law and reform proposals. The first general approach is to increase funding of the Internal Revenue Service so it can more effectively deter noncompliance and recover unpaid taxes. The second general approach is what this book terms “activity-based” rules, targeting the specific taxpayer activities that can either indicate or enable tax noncompliance.

The chapter analyses how the political and economic realities of the aftermath of the First World War gave the term ‘tax justice’ a new meaning in Belgium, occupied during four years by Germany, but also how it was fought over for moral and economic reasons during the 1920s. On the left of the political spectrum, the Socialists brought their own fiscal agenda, entailing new progressive income taxes on the wealthy. On the right, Liberals and Catholics disapproved of such innovations, judging them morally wrong and economically harmful. Compromises were found, with a real shift in the tax system. However, as the 1920s wore on, the Belgian franc suffered from a depreciation like the French and German currencies, with capital fleeing the country. The political debate on progressive income taxes shifted from justice to injustice: the massive level of tax fraud and tax evasion was making the system unfair towards honest taxpayers. Tax policies made in the name of social justice became an achievement to be defended for some and an excessive ideal to be attenuated for others.

Tax avoidance is one of the most controversial and widely debated topics in taxation law. This chapter examines the concept of tax avoidance and distinguishes it from the concepts of tax evasion and tax planning with which it is sometimes confused. It also discusses various judicial and legislative responses to tax avoidance. In particular, it focuses on the specific anti-avoidance provisions in div 6A of pt III ITAA36 and pt 2-42 ITAA97, which have been enacted to address certain income alienation schemes designed to divert income from taxpayers who are subject to high rates of tax to their associates (eg family members and related entities) who are subject to lower rates of tax. It also discusses service entity arrangements, which have been used by some professional firms to split income.

This chapter identifies and evaluates the institutional causes of the failures of the tax system in Bangladesh. At less than 9%, Bangladesh is among the countries with the lowest overall average ratio of tax revenue to GDP. It follows that its fiscal space, that is the capacity to spend on public goods and correct rising income inequality, is extremely limited. The low average tax ratio results from both low nominal tax rates and a low rate of tax collection, itself due to pervasive tax evasion (often with the paid support of tax collection personnel) or to tax exemptions generously granted by the Government to its supporters. In addition, albeit in a limited way, taxation distorts economic incentives, either directly through non-uniform tax rates that favour some sectors or firms and penalise others, or indirectly through exemptions and evasion. This chapter also explores the reasons behind the difficulties that have surrounded previous attempts at tax reforms, and the underlying political economy factors. It, finally, lists the most attractive reforms in terms of increasing tax revenues, the effectiveness of tax collection, and the redistributive impact of the tax system.

This chapter identifies and evaluates the institutional causes of the failures of the tax system in Bangladesh. At less than 9%, Bangladesh is among the countries with the lowest overall average ratio of tax revenue to GDP. It follows that its fiscal space, that is the capacity to spend on public goods and correct rising income inequality, is extremely limited. The low average tax ratio results from both low nominal tax rates and a low rate of tax collection, itself due to pervasive tax evasion (often with the paid support of tax collection personnel) or to tax exemptions generously granted by the Government to its supporters. In addition, albeit in a limited way, taxation distorts economic incentives, either directly through non-uniform tax rates that favour some sectors or firms and penalise others, or indirectly through exemptions and evasion. This chapter also explores the reasons behind the difficulties that have surrounded previous attempts at tax reforms, and the underlying political economy factors. It, finally, lists the most attractive reforms in terms of increasing tax revenues, the effectiveness of tax collection, and the redistributive impact of the tax system.

The sometimes problematic relationship between the private interests of citizens and the public interest of the republic was clearly evident in matters of public finance. The principle that citizens had a duty to pay their taxes was not disputed. There was a perceived connection between enjoying the benefits of eligibility to hold political office and having a duty to pay taxes, and to pay promptly. Taxation raised issues of justice and equity, of a fair distribution of the burden. There was also concern that public moneys gathered with such effort should be administered efficiently and honestly. All the republics identified the protection and promotion of commerce as a matter of public concern. Linked with healthy public revenues, as well as general prosperity, it was seen as fostering the welfare not just of a particular interest group, but of the whole republic.

This chapter examines the peasants’ everyday resistance to heavy taxes, particularly the land tax, the livestock tax, the road tax and the wheat protection tax under the single-party regime. It shows that under the authoritarian single-party system, peasants coped with the increasingly burdensome economic demands of the new state and resulting social injustice through everyday and informal means. In contrast to the existing accounts that mostly regard the peasants as atomized under the absolute control of the state, this chapter portrays them as a relatively active social dynamic, which annulled the great part of the taxes in practice and compelled the government to soften its heavy taxes.

This chapter indicates the problems the Vagliano brothers encountered in Russia as foreign trading companies. Their businesses could be described as a kind of proto-multinational that carried out international accounting. Their cosmopolitanism affected the hinterland of Imperial Russia’s South, and the story of the confrontation of Mari Vagliano with Russia indicates the populist and nationalist reaction to perceived foreign economic influence. Vagliano’s trial, which shook all of Russia for several months, has been described as the biggest trial in the legal history of Russia. This chapter examines the relationship of Mari Vagliano with Russian businessmen, government, and intelligentsia. As with Onassis’s legal battle with American authorities decades later, Mari Vagliano faced down highly public accusations of fraud and tax evasion, emerging from the confrontation unscathed. Vagliano and Onassis were prime paradigms for the survival of Greek firms involved in the international shipping business. Powerful governments have attacked entrepreneurial elites of foreign origin during periods of increasing nationalism and xenophobia.