SuperRitchienomics - how bungs contribute to the tax gap, without insulting HMRC
Posted by Christie Malry on July 16, 2010 at 12:33 pm
Ritchie desperately tries to explain what he meant when he apparently dissed HMRC inspectors for taking bribes. Are you sitting comfortably? Then we'll begin:
I was explicitly saying that such illicit payments, usually for the procurement of contracts, are themselves a contribution to the tax gap as they are untaxed, unsurprisingly
So, a transaction that shouldn't exist at all, and as far as HMRC is concerned doesn't exist at all, contributes to the tax gap because it isn't taxed.
Even by Ritchie's pisspoor standards of argument, that is pathetic.
The definition of the tax gap is, in layman's language, "the difference between what we think we should be getting in tax compared to what we actually end up getting in tax". The taxman doesn't expect to get tax on bungs or bribes, and therefore it cannot contribute to the tax gap. It's most definitely fraud, but there has never been a suggestion that they should be declared to the taxman. Where would you include such payments - Schedule D?
[Out of interest, some US tax authorities do have an ingenious method for taxing bits of the illicit economy, e.g. see here]
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I cannot face reading Murphy's drivel in whole but he may have a point, albeit I doubt it is the one which he thinks, and certainly not one in support of any allegation that HMRC officials are engaging in criminal activities, if that is, indeed, his thesis. Both the income tax act and the corporation tax act specifically provide for the disallowance of corrupt payments, e.g., bribes, facilitation payments or whatever. As such, and leaving aside any criminal law matters, a UK taxpayer is not, therefore, entitled to a deduction for any such payments when computing their taxable profits.. I have never come across any evidence, despite spending a significant part of my day dealing with tax fraud, of the extent to which such illicit payments are being booked as commisisons and other equally benign items by taxpayers when filing their tax returns, but it is not difficult to imagine that this is more routine than not, and that, consequently, taxpayers making such payments are contributing to the tax gap regardless of what happens to the payment in the hands of the recipient. Although it is not, as best I can see the argument being advanced, it is, therefore, correct, in theory at least, to say that the taxman does, or should, expect to get tax on bungs or bribes.
Well, it's a valiant effort. Do many bribes go through the company books though? Perhaps at the large scale end they do, but there can't be too many of those and there's always the chance you'll get rumbled by the auditors. Conversely, at the smaller end, you'd think it would be more off-book, cash in an envelope sort of stuff.
I'll save you having to read the rest of his paper; he had been writing about off-book transactions trickling down into evasion (VAT to PAYE) in the section beforehand. But it's entirely possible that he switched concepts in the middle of a sentence; certainly he wasn't very clear what he meant.