Introduction
Through tax evasion, individuals, companies, and organisations attempt to avoid paying taxes. Following the start of monetary markets, tax evasions in addition to other financial laundering activities have emerged as severe predicaments for macroeconomists. Although tax evasion in Egypt has always been a worry for economists, it has currently augmented to a greater degree given that the existence of new monetary markets favours tax evaders through the provision of simpler means of hiding their illegal money transactions (Feige 98).
The money that could otherwise have been utilised in economic and social advancement courses is used in criminal actions or in dangerous and poor ventures. Additionally, when the money from illegal ventures gets into the stock market, it creates unnecessary instability. In this regard, curbing tax evasion would allow huge chunks of money to be produced and utilised for welfare tailored ventures. This paper highlights an investigative report on tax evasion in Egypt with the interviewing of an economics university professor.
Evasion occurrence
Tax evasion is a progression that usually relates to the informal sector. A gauge of the degree of tax evasion is the quantity of the unreported revenue, which denotes the variation between the quantity of revenue that ought to be accounted in the tax systems and the real quantity reported.
An interview with the Professor of Economics in the American University in Cairo, Said Mona, revealed that the degree of evasion relies on some aspects by considering the financial equation coupled with the fact that attempts to evade tax decreases with the decrease in the money under transaction (Baldry 357). The professor as well stated that the degree of evading taxes relies on the effectiveness of the tax management. The increased level of corruption by tax officers in Egypt adds to the complexity of managing tax evasion.
Tax officials employ different ways to decrease evasion and augment the degree of imposition, for instance through privatisation. The evasion of tax is a criminal offense in Egypt and individuals who are found guilty are sentenced to fines or detention.
Deceitfully misreporting profits in a tax return in Egypt is deemed as a criminal activity and such actions are dealt with in the criminal courts. In Egypt, other tax wrongdoings that are considered criminal include intentional misrepresentation of records. Furthermore, civil tax misconducts could attract penalties. Presumably, the degree of evasion relies on the strictness of reprimand for evasion (Baldry 361).
The Egyptian Tax Authority (ETA) handed an evasion assertion to the Orascom Construction Industries (OCI). This tax amounted to almost 5 billion pounds associated with the sale of building materials by the company in 2007. The Chief Executive Officer (CEO) of OCI is Nassef Sawiris. Orascom Construction Industries is among the leading companies in Egypt and it hires 90,000 individuals.
The employees of this company originate from approximately 36 nations across the world. The Orascom Construction Industries Construction Group offers global engineering and building services mainly on infrastructure, manufacturing, as well as high-end trade ventures in different countries for both public and non-public clients (Baldry 368). The Orascom Construction Industries Construction Group takes a position amid the best international contractors.
Importance of taxes
In Egypt and in all other nations across the world, taxes are fundamental. With respect to the economy, taxes act as the basic source of finances for an extensive scope of social and economic plans. Taxes are thus necessary to fund public services and accomplish a country’s fundamental responsibilities.
In Egypt, taxes comprise close to 60 per cent of government income. Every government across the world requires money to carry out civil functions and control the undertakings of the state. These funds are usually accumulated from the residents of the country in the identity of tax (Jalili 167). Each country has its particular means of ensuring that taxes are collected from its populace. Ignorance concerning tax is capable of bringing about numerous crises.
The money collected as tax assists a country in safeguarding itself as it handles military expenditures. Moreover, taxes assist in the advancement of infrastructure and the condition of roads, hospitals, and the environment at large. Additionally, taxes aid in the development of the status of education for through taxes, governments can offer education to all citizens and assist in the raising of the living standards. Individuals and organisations pay their taxes in a bid to sustain an efficient government.
Taxes act as returns for the government to facilitate in funding socialised services like medical attention and security among others; therefore, when nobody is submitting taxes, the community could fall apart and the country deteriorate.
Therefore, it is significant for each individual to pay taxes without failure. The government in a country can enforce taxes in different types, for instance, via income taxes, and toll tax among others. Not every person in a nation is required to pay taxes. Payment of taxes is reliant on nation to nation; however, in the majority of instances the individuals that earn very low incomes are at times exempted from paying some taxes (Jalili 172).
Moreover, not everyone in a given country is expected to pay taxes in an equal measure. Normally, individuals that have high incomes are expected to pay a bigger proportion of tax as compared to individuals that have low incomes. The residents of a country are not supposed to complain on the load of tax payment, rather they ought to consider the utilities that they obtain out of payment of taxes. Some of the services that are offered by the government through the money from taxes encompass the following:
- Infrastructural developments: The government of any country requires money for the construction of roads, airports, ports, and communication networks just to mention a few.
- Pubic security: Funds obtained from taxes are utilised in the provision of fire fighting equipments as well as hiring of police (Jalili 182). Moreover, such funds assist in financing the sustenance of the military forces (comprising of the air force, army, and navy) as well as adequately providing them with ammunitions.
- Common services: Maintaining cleanliness of the roads, treatments of water, provision of lighting in urban centres, waste disposal, and sustenance of game parks and many more
- Health services: Nearly every government offers adequate and subsidised health services to all its populace, which could encompass immunisation and relief from tragedies. All these aspects are made possible by the taxes that a government collects from its citizens.
- Others include the sustenance of historic sites like museums, government and disaster reliefs, financing elections, finance government ministries and equipping them (Jalili 191)
Why tax evasion is not good
Tax evasion underscores any form of unlawfully evading taxes that an individual is obliged to pay. Tax evasion is at times confused with tax avoidance, which means taking measures to decrease taxes that are in accordance with the law.
The elements of tax avoidance include tax deductions as well as different lawful tax excuses. Tax evasion can take place with every form of tax, but it is usually linked to income taxes in addition to sales taxes. For instance, in Egypt there exists a legal income tax, and every income (whether money or material commodities) has an enforced tax.
Following its strictest description, many Egyptians probably engage in tax evasion by not including minor sources of income or the profits garnered, albeit in most cases such an occurrence happens unknowingly (Lachapelle 38). With the reality that it is nearly improbable to notice every one of the insignificant sum of money that change owners, the Egyptian government hardly ever hunts such insignificant cases of tax evasion for it concentrates on wider targets such as companies and rich people.
The interview with Said Mona as well gave the insight that taxes are normally regarded as economically ineffective tools, which underscores the suggestion that tax evasion could potentially have positive outcomes on the economy.
The theory behind this suggestion hinges on the assumption that taxes act by augmenting the costs of commodities and thus general expenditure diminishes with the augment in taxes, and consequently economic action drops. The suggestion for taxes is that communities and companies are not capable of accurately assigning resources toward ventures that are meant for the universal good, for instance roads, airports, and other forms of infrastructure.
Hence, the government is given the responsibility of collecting taxes in a bid to try and perfectly allocate this money for the provision of public amenities (Lachapelle 40). The fundamental economic laws could imply that in the nonexistence of the government, non-public organisations could fill the gap in offering pubic amenities and carry it out more effectively since there could not exist such barriers as tax collection, tax evasion, and government establishments.
However, as Said Mona made it clear, non-public organisation can never be more effective in carrying out all the responsibilities when judged against the government. Even though the notion of taxes being economically ineffective provides support to the likelihood of tax evasion being an economically effective exercise, tax evasion as well brings about numerous detrimental results.
To start with, the government has to use resources in a bid to recover the taxes it is owed, which could appear as a wasteful exercise to the community. In a case where no individual evades taxes, much money would be channelled towards beneficial schemes rather than being utilised in the recovering of evaded taxes.
In addition, an effective capitalist economy depends on rivalry amongst businesses (Lachapelle 41). Nevertheless, when one business is practicing tax evasion and the other one is not, it generates a simulated benefit for the business engaging in tax evasion. This process could allow businesses with diminished dealings to survive longer than the ones that have effective processes, which could be harmful to the economy.
Egyptian Government not doing enough to tackle the problem
Even if the Egyptian government is carrying out more strenuous attempt to restructure the nation’s tax authorities (particularly with respect to making it more investor-pleasant), it still holds the characteristic disorder and ineffectiveness prevailing all through generations of social ineffectiveness.
Tax evasion is not a big issue in Egypt owing to the intricate and highly inefficient collection scheme. Managers have established several tactics for saving their foreign employees from the misery of striding through tax laws. In this regard, most of these employees are paid in the form of cashable cheques or hired as fake consultants, which is meant to leave the choice of payment of taxes to the workers themselves (Resnik 44).
When workers are paid through cashable cheques or as consultants, they are aware that the possibilities of the Egyptian government ever claiming taxes from them are insignificant. Nevertheless, for those receiving huge sums of money, they are easily likely to be discovered and thus are compelled to pay their taxes. Therefore, the tax reforms made in Egypt by the close of 2005 were essential to decrease tax hindrances to investments. Nevertheless, the reforms are still not adequate to tackle the problem of tax evasion effectively.
Summary
Through tax evasion, individuals, companies, and organisations make endeavours to avoid paying taxes. Additionally, through tax evasion, the money that could otherwise have been spent for economic and social progress is used in wrong actions or in hazardous and poor ventures.
While interviewing Professor Said Mona, it was disclosed that the degree of evasion relies on some characteristics by taking into contemplation the financial equation and the fact that the endeavours to evade tax diminishes with the lessening of the amount of money one is obliged to pay. The evasion of tax is an unlawful offense in Egypt and the persons who are found blameworthy are sentenced to fines or detention.
The Egyptian Tax Authority (ETA) has accused Orascom Construction Industries (OCI) of tax evasion amounting to almost 5 billion pounds. Taxes are essential as they fund public services coupled with facilitating a country’s fundamental errands. Tax evasion is capable of bringing about numerous crises. The money amassed as tax is used to assist a country in safeguarding itself as it holds military expenditures.
Taxes are used to support the advancement of infrastructure and the environment at large. Moreover, taxes serve in the development of the status of education. Even if the government of Egypt is implementing strenuous endeavours to reorganise the nation’s tax authorities (mostly with regard to turning it into investor satisfying), it still embraces the typical disorder and futility prevailing all through cohorts of social ineffectiveness.
Conclusion
Although tax evasion has always been an alarm for economists, it has presently augmented to a larger degree given that the majority of the new monetary markets favour tax evaders through the provision of simpler approaches of hiding illegal money. An interview with the Professor of Economics revealed that the measure of tax evasion relies on some facets, by taking into deliberation the financial equation and the fact that endeavours to evade tax lessen with the reduction in the money that one is required to pay.
Evasion of tax is capable of causing plentiful of crises. Taxes support great developments carried out by the government at the advantage of its citizens. Tax reforms in Egypt in 2005 were essential to cut tax hindrances to investments. Nonetheless, the reforms are still not satisfactory to tackle the difficulty of tax evasion successfully. Therefore, the Egyptian government should put in place other strict measures to counter tax evasion.
Works Cited
Baldry, Jonathan. “Income tax evasion and the tax schedule: Some experimental results.” Public Finance 42.3 (2011): 357-383. Print.
Feige, Edgar. The underground economies: Tax evasion and information distortion, Cambridge: Cambridge University Press, 2007. Print.
Jalili, Ali. “The Ethics of Tax Evasion: An Islamic Perspective.” The Ethics of Tax Evasion 1.1 (2012): 167-199. Print.
Lachapelle, Jean. “Lessons from Egypt’s Tax Collectors.” Middle East Report 264 (2012): 38-41. Print.
Resnik, David. “Practical and political problems with a global research tax.” The American Journal of Bioethics 10.6 (2010): 44-45. Print.