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Mr. Eric Le Borgne and Ms. Katherine Baer

Abstract

Tax amnesties remain as popular as ever as a tool for raising revenue and increasing tax compliance. International experience, however, shows that the costs of tax amnesty programs often exceed the programs’ benefits. This paper weighs the advantages and disadvantages of tax amnesties, drawing on results from the theoretical literature, econometric evidence, and selected country and U.S. state case studies. The authors conclude that “successful” tax amnesties are the exception rather than the norm. Improvements in tax administration are the essential ingredient in addressing the main problems that tax amnesties seek to address. Indeed, the most successful amnesty programs rely on improving the tax administration’s enforcement capacity. ?Given the potential drawbacks of tax amnesties, a few alternative measures are discussed.

Mr. Eric Le Borgne and Ms. Katherine Baer

Abstract

Countries and states have introduced tax amnesties for a variety of reasons. Among the most common ones are (1) an immediate revenue need (e.g., during an economic downturn), (2) a desire to improve tax compliance so as to improve revenue over the medium term, (3) a new government wanting to distance itself from a previous government’s policy, (4) signaling a regime change and “drawing a line in the sand” (e.g., former Soviet Union transition economies moving to more market-based tax systems), and (5) repatriating offshore capital so as to boost domestic investment and growth (e.g., in Italy).

Mr. Eric Le Borgne and Ms. Katherine Baer

Abstract

“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” (emphasis added)

Mr. Eric Le Borgne and Ms. Katherine Baer

Abstract

A tax amnesty can be defined as a limited-time offer by the government to a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability (including interest and penalties), relating to a previous tax period (s), as well as freedom from legal prosecution. Amnesties generally fall in two categories: financial and legal. For the former, a tax amnesty implies a reduction (in real terms) of taxpayers’ declared or undeclared tax liabilities as established by law.4 This reduction can be achieved through a variety of measures: for example, through a reduction or cancellation of (1) interest and penalties owed on the underreported or undeclared taxes or (2) tax liabilities (or some combination of these).5 The latter includes a waiving of civil and criminal penalties.

Mr. Eric Le Borgne and Ms. Katherine Baer

Abstract

In this section we analyze the recent trends in tax amnesties, and some evidence is provided regarding their revenue and compliance effects. The first section is devoted to a review of the econometric literature on the (mainly revenue) effect of tax amnesties. The second section describes the U.S. states’ experience with amnesties (through a general overview and then two case studies: the tax amnesty programs of Kentucky and Michigan, both in 2002). The experience of the U.S. states is worth investigating because, given the relative homogeneity of these states (at least compared with cross-country studies), it is easier to identify key factors affecting the success of tax amnesty programs. The final section focuses on cross-country experiences, first through a general overview of recent tax amnesty trends, and then through selected case studies (Ireland, Italy, Argentina, Turkey, and the Philippines); these case studies have been selected for the range of amnesty programs they cover.

Mr. Eric Le Borgne and Ms. Katherine Baer

Abstract

The previous sections have highlighted some of the shortcomings of tax amnesties: (1) immediate gross revenue collection is, at best, limited to a low (single-digit) share of revenue collection; (2) short-term gross revenue collection often far exceeds net revenue collection (i.e., net of administrative, advertising, forgiven fines, and penalties); and (3) the negative compliance effects can more than outweigh any of the short-term revenue benefits.

International Monetary Fund
Albania has made much progress in recent years in improving fiscal transparency and meets the standards of the fiscal transparency code in several areas. However, shortcomings exist in the transparency of tax laws and instructions, and in budget preparation and the quality of budget documents. The appropriation structure in the budget document should be expanded as soon as possible. Transparency of tax legislation should be implemented. The government should develop formal guidelines and procedures for evaluating and prioritizing projects included in the investment budget.
International Monetary Fund

, while preserving taxpayer anonymity, the decisions of the tax appeals commission and judicial rulings on tax matters. The authorities should prepare and publish a tax expenditure analysis, demonstrating to parliament and the general public the costs of providing tax concessions. 45. On budget preparation and quality, the staff suggests to give high priority to the implementation of the following recommendations : The appropriation structure in the budget document should be expanded as soon as possible to cover object/economic classifications of recurrent

Mr. George Kopits

from deposits and securities imposed at source on all EC residents. Largely because the first and second solutions were seen as running counter to a long-standing tradition of taxpayer anonymity in some member countries, the Commission initially opted for the third approach. A 1989 proposal called for a minimum withholding tax on interest income of EC residents, set at 15 percent. The proposal would only apply to debt instruments issued by EC residents and defer to national authorities the tax treatment of interest income on Eurobonds and small-size savings