`Tax prosecutions are pending: people will go to jail'

Fear of the Revenue Commissioners has grown significantly in recent years and tax evasion - the illegal non-payment of taxes - is consequently on the decrease, according to tax experts.

The Revenue outlined its policy of pursuing prosecutions in its 1996 annual report and staff in the Revenue prosecutions unit have been trained in the conduct of criminal investigations and the preparation of books of evidence. Tax advisers associated with proven cases of tax evasion can themselves face stiff penalties.

"The word on the grapevine is that there are a number of cases pending," said one senior adviser who did not wish to be named. "I would be surprised if there are not half a dozen prosecutions before the end of the year. People are going to go to jail."

In fact there are currently 23 cases making their way towards the courts. Three cases which have come to court have resulted in convictions and fines.

However, statistics published by the Revenue would seem to indicate that significant under-reporting of income is still taking place or, at least, has been taking place up to very recently.

In the tax year 1994-1995, the latest year for which figures are available and one year after the second tax amnesty, only 29,554 self-employed people declared a gross income in excess of £30,000. Gross income is income declared before adjustments in relation to capital allowances, interest paid, losses, allowable expenses, etc.

The category includes proprietary directors. It is difficult to believe that such a small number of the people running their own companies, professional practices, shops, pubs, farms, etc, earned more than £30,000 gross that year.

The 29,554 figure includes 9,913 married couples who were taxed as a single unit. If they are excluded then only approximately 20,000 self-employed individuals, including proprietary directors, had a gross income in excess of £30,000 in the 1994/ 1995 tax year. The total number of self-employed people registered was 194,074.

The number of people on the Revenue's income tax books for 1994/1995 was 1.25 million. Of these, 106,454 reported a gross income in excess of £30,000 (8.5 per cent of the total). The total gross income declared to the Revenue was £17.33 billion.

In the Dail on Wednesday the Minister for Finance, Mr McCreevy, said there has been a dramatic increase in the tax yield from the self-employed since the onset of self-assessment. There had also been an impressive increase in the timely filling in of returns.

The Central Statistics Office (CSO) estimate for total personal income in 1995 was £30.44 billion, some £13.1 billion more than the amount declared to the Revenue. However, Mr McCreevy, when asked about this in the Dail, said the two figures were not comparable, and that when adjustments were made the difference between the two figures was reduced to £1.8 billion. This could be largely or entirely explained by innocent factors, such as farmers on low incomes, or tax exempt income such as stallion fees, artists income and patients income. He told Mr Eamon Gilmore of Democratic Left that he did not see any need to appoint a commission to examine the issue.

Tax consultants say there has been a sea change in attitudes in the past 10 years. Mr Eamon Griffin is a partner in Farrell Grant Sparks, personal and corporate tax consultants, and a former inspector of taxes. He believes changes in the law, the real danger of prosecution, and the introduction of the self-assessment system have reduced tax evasion.

"People know they are going to have to do revenue audits. They know the penalties that are there and that there is the prospect of going to jail. Getting involved in tax evasion is daft."

Proving tax evasion - fraud - is difficult, but the Revenue now has specialist staff trained in the preparation of evidence. The economy is booming and people don't need to evade paying their taxes, Mr Griffin said. "I don't believe there is a culture of evasion. There has been a change."

He believes the Revenue has an "enormous range" of powers and that the "draconian" measures which might be needed for some "hard cases" would be in conflict with civil liberties and the rights of the general population. A balance has to be struck, and there are always the harsh penalties which now exist, he said.

The vast majority of tax advisers will have nothing to do with clients who are trying to evade their taxes. "There are serious penalties for people who aid and abet, so we have to be extremely careful who we do business with and what we do."

Another adviser, who did not wish to be named, said his advice to anyone who has undeclared income is to go to the Revenue Commissioners and declare it. If the Revenue catches up with the evader, rather than the other way around, then the penalties are likely to be much higher.

But because he has been giving this advice for some time, the 1993 amnesty left him feeling uncomfortable. "I felt bad that people I had advised to pay their taxes had paid at the going rate and then others had paid only 15 per cent in the tax amnesty. I dreaded a client saying that if they had never sought advice from me they would be much better off. I had a moral problem with that."

Taxation consultants are anxious to emphasise the difference between tax evasion, which is illegal, and "tax avoidance", which is "planning your affairs so you pay the least amount of tax". Tax avoidance can range from organising medical insurance and pension schemes for which there are tax benefits, to involvement in BES schemes and buying Section 23 property for rental income free of tax up to the value of the property purchased.

However, making BES investments or becoming a landlord is beyond the means of most workers, and opportunities for tax avoidance increase in parallel with rises in the income of the person seeking to avoid paying tax.

A study conducted by the Revenue Commissioners on 400 people who earn £250,000 plus per annum, found that one in five paid tax at an effective rate of 20 per cent. It is understood the Revenue discovered that a number of lawyers, accountants and businessmen had formed syndicates to avail of generous tax shelter's in the International Financial Services Centre (IFSC) in Dublin.

Investors could get 100 per cent capital allowances on their investments. Last year private investors bought buildings in the IFSC worth £73 million. Such was the attraction of the scheme that it pushed up prices and made the area unattractive to pension fund investment. Changes were introduced in the budget to reduce the attractions of the scheme.

At the upper end of the income and the tax avoidance scales are the very rich Irish business people who operate internationally and are not registered as residents here in Ireland for the purposes of paying income tax. The rule is that you must not spend more than 183 days in the jurisdiction in each tax year.

Many of the people concerned maintain substantial households in Ireland, but arrange their lives so they are outside the country for the required number of days each year. Telephone records and other documents can be produced as proof for the Revenue. Such people can then register as residents in jurisdictions where they will pay very little tax.