Israel Using Technology as Key Tool in Crackdown on Tax Evasion

“Take a person who travels tentimes a year overseas and is registered on the tax rolls as someone who’s earning the minimum wage,” says Moshe Asher, the director of the Israel Tax Authority. “Or take a person who has four apartments and doesn’t report the rental income but also reports a salary under the minimum wage. That’s something reasonable?”

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Asher, an attorney and accountant by training and Israel’s top tax man since March, aims to do something about it.

“We’re working to widen the reporting requirements,” he told TheMarker in an interview. “Working through our database we’re identifying people we believe should be filing annual tax returns and haven’t been. We’re asking them questions and taking steps if need be.”

The authority’s database is being mined to uncover all kinds of tax evasion. “People will soon be getting a letter instructing them to file an annual tax statement,” Asher warns. “We’ll be collecting taxes that haven’t been paid in years.”

Asher isn’t stopping there. A team is now investigating the requirements of annual tax filing as defined under the current law. In the next few months, the team will make recommendations that will almost certainly call for amending the law to widen the requirement to encompass more taxpayers.

“We’re harnessing technology and our database to reach taxpayers who haven’t been paying according to the law,” Asher says.” We’re less interested in Mrs. Cohen from Hadera and her husband who together earn an average take from their salaries and pay withholding tax from their savings held in the bank.”

Asher says the ultimate goal is for the tax regime to ensure that the burden is divided more equally. “If we fight the war against black capital correctly – and that’s our main target for 2014 – we’ll collect a lot more tax and all of us will enjoy a lower tax burden.”

Age 48, Asher started his career at the Tax Authority 22 years ago as an inspector in the Petah Tikva office. Over the years he has served as an adviser to three-income tax commissioners and as an official responsible for big corporate taxpayers. That’s one of the most important jobs at the authority.

Asher says he’s happy with the authority’s work in the first year of his term, with collections running 6 billion shekels ($1.72 billion) ahead of the 2013 target, or a total of 234 billion shekels.

He concedes that some of that extra money came from tax collected on the so-called trapped profits of major corporations after the government offered them a window to pay an especially low rate. But Asher says stepped-up collection efforts helped, too.

“Even with the same vigorous and determined approach, 2014 will be a hard year,” he says, noting that the annual collection target is 250.5 billion shekels. “That’s without a doubt an ambitious target. We’ll make every effort to meet or exceed it,” of which the war on black capital is the centerpiece of the effort.

To do that, the Tax Authority has taken on an extra 400 staff, of whom 300 are professionals in criminal investigation, income and property-tax inspectors, auditors and value-added-tax inspectors. The other 100 are students.

A reorganization of the authority is to strengthen ties between top officials and the 70 field offices. A plan to merge the income and property-tax authority with the units responsible for VAT and customers is under discussion with the unions, Asher says.

The Tax Authority is charged with collecting 2 billion shekels more in taxes from black capital than it did in 2013.

Asher doesn’t think that’s too modest a goal. “The war against black capital isn’t just being fought by the Tax Authority but by all the divisions of the Finance Ministry,” he says. “That means we’re getting the collection and legislative tools needed to help us in the battle.”

Asher insists that rabbis heading institutions funneling millions of shekels in donations are not exempt from the get-tough policy. “We’re examining the receipts issued by the rabbinical courts,” he says. “If we find instances of income liable for tax, the Tax Authority will take the appropriate steps.”

Another important element is the approval last year of a law requiring money changers to file quarterly reports with the Tax Authority on all transactions exceeding 50,000 shekels.

Tax officials believe a large part of unreported income is funneled through money changers. “We’ll be able to cross-reference this information with other data we have,” Asher says. “When it’s relevant, we’ll open a civil or criminal investigation as needed.”

The authority is stepping up cooperation with its peers in other countries belonging to the Organization for Economic Cooperation and Development. The government has formed a committee to explore how to reduce cash transactions – another popular way of hiding income from tax inspectors.

Not all the changes at the authority are focused on tax evasion. The agency is planning a mini-revolution aimed at making its operations more efficient and taxpayer-friendly. There will be fewer paper forms and more electronic documents so that more interactions can be done online. The authority is even opening a centralized call center to reduce red tape.