In the first two days of last week's public campaign urging Israelis to turn in tax cheaters, more than 1,000 calls came in, Israel Tax Authority chief Doron Arbely said yesterday.
"Within two days we reached 1,000 calls, with 20 to 30 callers asking to meet and present us with further information," Arbely said.
The launch of an ad campaign starring actor Nati Ravitz signaled the start of a war against the underground economy - or at least the declaration of war. Ravitz urges viewers to call the "justice hot line" and report tax evaders. In 2011 it was comedian Eli Yatzpan who presented a campaign similar to the Israel Tax Authority's "snitch" program, but since then the government deficit has soared to NIS 40 billion and it seems the taxman is more anxious than ever to receive your call.
"Tax evasion is everyone's problem," states the ad slogan. The Israeli public may not be fond of snitches, but the phones haven't stopped ringing since the campaign took to the air.
"Anyone with an understanding of investigations knows the campaign includes a measure of deterrence," said Arbely. "Today every tax evader knows he can be busted, so tomorrow when you travel by cab or hire a plumber he'll give you a receipt."
This is just the first among a series of measures planned by the tax authorities to collar tax cheaters who owe the government tens of billions of shekels. Last week, in a press conference, Arbely presented the recommendations of the committee he headed on the war against the underground economy to Finance Minister Yuval Steinitz.
Beyond the aggressive publicity campaign, the recommendations call for the establishment of a special unit to fight organized crime, boosting the authority's manpower by 600 to 700 staffers, and legislation to broaden the authority's capabilities in dealing with tax offenders and stiffening their punishment. Other recommended measures include strengthening cooperation and information-sharing with other agencies, including foreign tax authorities.
"The report aims at dealing with all tax evaders, large and small, from private teachers not reporting their income to major crime families," says Arbely. "Nobody will be under the radar. This is our responsibility and the public needs to come aboard. You know how much in active debts I need to collect? NIS 39 billion."
There are 16,000 tax files currently before the courts, totaling NIS 16 billion, according to Arbely. A study by the World Bank in 2010 said Israel's real economy is 23% larger than reported, compared with 17% for Germany, 13% for Britain, 12% for Japan and 9% for the United States, with Israel ranked 23rd among 31 OECD countries. The figures portray Israel as a banana republic, with tax evasion considered a norm across all sectors and social classes without any shame or social stigma attached.
With economic measures and tax hikes in the offing, it seems the timing is particularly ripe for an all-out war against the phenomenon, and the goals described by the tax authority are accordingly ambitious: An additional NIS 2 billion to be collected this year and another NIS 6 billion in each of the next three years.
The battle cries were received with some skepticism, both as to the program's chances of success and because of concern that the implied draconian measures might cause more damage than good. Critics in the fields of law and taxation say having the full power of government aligned against citizens mistakenly targeted by the tax authority could make them defenseless against the system.
About one third of the committee's recommendations are combined in a bill now before the new Knesset that is expected to easily pass due to the deficit. The critics say passage of the law would be catastrophic for civil rights.
One of the principal provisions in the bill would add tax evasion to the same crime category as money laundering. This would place some tax offenders in the same boat as those who made their fortunes in arms and drug trafficking or terror operations.
It would also give the tax authority access to the highly classified database of the Israel Money Laundering and Terror Financing Prohibition Authority (IMPA ). One clause of the bill calls for an amendment to the Prohibition of Money Laundering Law to give customs agents the authority to investigate money laundering cases associated with tax evasion and access to the IMPA database.
"The Prohibition of Money Laundering Law is meant to fight terror organizations, crime families, and drug cartels," says attorney Sarig Damari of the law office Dolan Damari Matatyahu, who represents the Israel Bar Association in the Knesset on money laundering prohibition issues.
If the bill is passed, the tax authority will receive terrorist-fighting power, with the ability to impose draconian sanctions and cooperation with international agencies, all outside the involvement of the Justice Ministry, says Damari. "I also think the phenomenon should be eradicated and I'm not here to defend tax offenders. But I don't think that in this case the end justifies the means, just like I wouldn't want to live in a country where they cut off the hands of thieves, even though I'm not a thief."
Damari says if the law is passed, any citizen could have all his property seized, all gifts he ever gave impounded, and credit cards confiscated. "I've represented people who experienced this," he says. "I have a client whose only sin was once being controller in a firm that provided computer services several years ago to an Internet gambling site.
"This also applies to law-abiding citizens," he concludes. "It's not a sharpshooter's bullet: You're handing out a hunting rifle and will have many more surrounding victims."
Arbely is familiar with these claims, but says they're far from being realistic and that the tax authority's hands are tied when it comes to going after the heaviest tax offenders. "Today, if IMPA has information on tax evaders it can't pass it on to the tax authority," he says. "The government needs to decide if it wants to fight tax evasion or not.
"We're talking about a localized approach, specific instances of organized crime and cases amounting to hundreds of millions," continues Arbely. "I already receive part of the information from the police. But the less information we receive, the less effective the war on the underground economy will be."
But attorney Kobi Cohen, a former senior staffer at the tax authority, isn't convinced, saying it's a slippery slope. "The bill talks about access of information to customs investigators," he says. "Tomorrow they'll change the definitions and many at the authority will be exposed to the information. Allowing the tax authorities access to information meant to deal with serious offenses and crimes is very dangerous. Even if you're completely on the up-and-up, you wouldn't want someone watching you sitting at home completely dressed. It's part of the growing intrusion on privacy, like the biometric database and many other things.
"Everyone wants people to pay honest taxes, but on a day-to-day basis most of the tax authority's activities don't deal with criminal files but with disputes between the authority and citizens on the amount of tax that should be paid," continues Cohen. "These are completely legitimate disputes. This escalation will hurt our ability to defend ourselves as citizens from the tax authorities."
Accountant Ofer Alkalay, an expert at investigations into fraud, embezzlement, and money laundering, supports the move. He claims enforcement and judgment are only two of the three angles in dealing with the problem; the third is connected to educating the public and removing the social legitimacy it receives.
"For instance, I had a client in the field of social functions," he explains. "Among his customers were judges who argued over why they should pay value added tax. If you performed a survey asking if people would prefer paying a plumber NIS 500 under the table or NIS 585 including VAT, I am sure more than 50% would prefer paying under the table. So in my opinion, along with education, the authority needs to continue its enforcement activities on business owners."
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