Your Chance of Getting Caught Dodging Tax: 4%

Holiday interview with Yehuda Nasradishi, a tax commissioner who loves his work

How likely are you to get caught if you dodge tax? Apparently, not very. This year the Tax Authority is expecting about a million tax returns from companies, the self-employed and workers seeking this or that adjustment - and that doesn't include returns. The Tax Authority, meanwhile, has 450 tax inspectors. You do the math.

"That's the mission, and those are the forces at my disposal," says tax commissioner Yehuda Nasradishi, in a special holiday interview with TheMarker.

Nasradishi has been at the Tax Authority his whole adult life. He loves the place, the work and the people. They work very hard, but under the circumstances, they have to take a lot on faith. So be it.

Of those million tax returns, 730,000 are from the self-employed and companies, and 260,000 are complex cases by salaried employees - for instance, people holding two jobs or working for themselves and on salary in parallel. During the year, his inspectors will be able to look into only about 4.7% of the self-employed and companies, and 1.9% of the complex cases.

In other words, they inspect about 40,000 cases a year, says Nasradishi. The rest of the returns they take on faith. After three years, a sort of statute of limitations applies and the return becomes final.

It's no trick collecting tax from salaried employees: Income tax gets deducted by the employer. The problem is collecting from companies and the self-employed, he says. Ergo, salaried employees pay the true tax they owe, to the last shekel, but the rest may well not. It's the Tax Authority's job to balance that unfair equation, in Nasradishi's view. "I have to create some sort of deterrent with 450 tax inspectors," he says.

Actually, the Tax Authority's course to train tax inspectors is in high demand. Tax inspectors are generally lawyers or accountants by training and many are both. The course lasts three and a half months, followed by a four-month internship.

Each inspector is expected to complete a quota of tax returns each year. They choose 60% of their cases themselves and get allocated the rest by headquarters. They may choose cases in which the reported tax seems oddly low, or where reported costs seem peculiarly high. Headquarters, on the other hand, chooses by its own criteria, which may be the same as the above - or, for instance, it may want to closely inspect a given sector.

In 2009, at the height of the global economic crisis, Nasradishi decided to deviate from that working model. As the global economy tanked, the state treasury was terrified that tax collection would fall very far short of the prediction for the year, on which the national budget had been based. Then the state wouldn't have money to finance its programs, from education to healthcare, welfare and defense.

Nasradishi directed his inspectors to focus on cases where they thought more tax could be collected. Ultimately the Tax Authority collected NIS 4.5 billion more than projected for 2009, he says.

In almost half the cases, the inspectors approve the returns as filed (43% in 2008 and 42% in 2007). If they find something suspicious, the filer (or his accountant) is summoned. Then either an understanding is reached, which is usually the case - or it isn't.

If the Tax Authority and the taxpayer can't settle the case, it's transferred to another inspector. His decision has the status of a magistrate's court ruling. If this second inspector and the taxpayer reach an understanding, well and good. The second inspector may issue a tax bill which, in this case, has the status of an injunction. The taxpayer may pay that bill or appeal it to the district court.

Very few cases reach that extreme state of an appeal to court, says Nasradishi, noting that the inspectors' work is closely supervised by the appropriate professionals, lawyers, economists, the international division, or whatever is required. The Tax Authority is very cautious when it comes to issuing injunctions, he says.

Begging to correct a misapprehension, Nasradishi stresses that tax inspectors are not paid an incentive bonus if they collect more tax than a taxpayer originally reports.

On the other hand, the Tax Authority does reward its inspectors; for instance, if they close a case before the allotted deadline, or for meeting quality of work goals or carrying out computerized audits. "Most inspectors get a 25% addition to their base salary," Nasradishi says.

The Tax Authority keeps tabs on its people by compiling periodic qualitative and quantitative reports on its workers at all levels, from the individual inspector to the regional office and the level of the division. The Tax Authority has 25 offices throughout Israel.

The best-performing inspectors, based on these reports, can win fast-track promotion, says Nasradishi. Usually a promotion can take two years at least, but the best inspectors can be promoted after just one year. But the person in question must have provided "added value," explains the commissioner.

The Tax Authority is no different from any other manufacturer, says Nasradishi. People have to clock in. The authority keeps tabs on absences, tardiness, conduct, quality and quantity of production and the amount of tax that each person generates.

"Eighty percent of the workers at the Tax Authority have tenure. Fast-track promotion is an important management tool," Nasradishi says. While the Tax Authority hasn't fired a single inspector (for incompetence or sheer sluggishness, for instance) in 10 years, such people don't climb the ladder fast.

"I don't have many tools to reward excellence other than fast-tracking promotion, grants for study and leave for higher education. Why can't I do what Cellcom does?"

Nasradishi today is 66 years old and he's been at the Tax Authority for 45 years. "It's my life's blood," he attests. "I started at the bottom. The authority has 5,200 workers and managers. They are the best workers in the civil service, from the lowest ranks to the highest. People here work with faith, with motivation." Nasradishi works hard, he acknowledges, but he feels that the authority has stable management working together in harmony.

Every organization always has some people who feel frustrated because they haven't been promoted or haven't been heard. This is true, but they're on the margins, he says: "As long as I'm here, I will contribute to the system through transparency, integrity and faith."