May 5, 2009
One of the areas of topic that has arisen in the midst of this current economic mess is the the issue of taxation. The terms “tax exiles” , “tax reform” and “close the loopholes” etc… have been bandied about under the banner of “broaden the tax base” – without anyone (that I know of) coming out with any real concrete proposals.
So I\’ve come up with one of my own, provisionally titled “Cash Transaction Subject Tax” (CTST)
It basically works like this – for every cash lodgement made into a bank, the lodger must declare what tax category the cash is to be subjected to, e.g. income tax, cgt, tax on renal income, gift tax, inheritance tax etc..etc..
Failure to declare the tax category will automatically subject the cash to CTST at draconian levels of say, 75%. So if you lodge a 100euro into a bank account and fail to declare the tax category then you are liable to pay 75euro of that in tax.
The effect of this is to encourage everybody to declare the source of their income and thus subject it to the normal tax categories. This would bring an end to large sums of money wandering around from one bank account to another.
In practice, no-one will ever pay the 75% tax rate as they will make sure that the revenue commissioners, via the bank, know the origins of the income.
It would not take much administration to implement this – a simple tick box on a deposit slip or a space to write the tax category would suffice.
So here is a few examples of how it would work in practice –
1. Employees who are paid by EFT. The EFT file transcation will contain a code that shows all the monies lodge have been subjected to PAYE.
2. An employee who gets paid cash – he lodges the money in the usual way and ticks the PAYE Income tax box. Nothing will eve happen unless the Revenue decide to do an audit on this employee. The Revenue, in the same way as they do now, will see that the employee paid X amount of Income Tax in the year, and using the employees bank accounts will be able to see how much money entered the employees account in the year and will be able to determine if enough tax was paid.
3. A self-employed individual will also have a clear audit trail as o their income. There is a problem here however – a self-employed person receives 1,000euro in cash, he automatically spends 200euro on groceries and only deposits 800, declaring it for tax purpopses – but this is no different than what already occurs today. But in this system their would be a clearer picture for the Revenue to follow in my opinion, thus reducing the problem of tax evasion.
Alternatively, legislation could be brought forward to make all income payments to be paid via EFT or cheque – eliminating the cash evading tactics.
In the instance where someone receives a cash refund via EFT for a purchase then the EFT will contain the correct code, eliminating it from or the the total tax paid will already suffice.
In the instance where someone receives a 100euro for a winning horse, then the depositor merely indicates this in the “Other” section on the deposit slip – i.e. prize winnings (a new tax rate could be created for that, although it sounds a bit spoilsport the reality is most of us dont win at the horses anyway!!)
The essence of this system is to encourage everyone to declare all their incomes in the first instance. So instead of people trying to avoid/evade the tax rates in the normal categories, the onus is on the income holder to avoid the draconian 75% tax rate.