Tax avoidance and evasion

On a recent visit to the UK I had to make use of the London underground service. The free Metro newspaper issue of April 26 had the following headline: Write Your Own Tax Loopholes. It obviously caught my eye as it dealt with the end result of a probe by the British House of Commons’ Public Accounts Committee.

In a statement to the press, the PAC said that the current big four audit firms, namely, Deloitte, Ernst & Young, KPMG and PWC, are seconding staff from their firms to the Treasury and then cashing in on the loopholes in the tax laws they assist in creating, hence, minimising the amount of tax revenue the HMRC, the UK Customs and tax department, should be receiving. As a very simple example, would-be taxpayers are advised on what falls to be an allowable expense and what isn’t in the process of computing the tax due.

The government should look into attracting high-calibre talent to the civil service

The overall final consequence being that HMRC does not receive what is due to it, if any.

Undoubtedly, a conflict of interest exists here and I find it somewhat unfathomable that something like this happens in the UK, a country well known for its rules of fair play.

To their defence, the audit firms have reiterated that their representatives “do not write legislation or make policy decisions”.

To me, this is playing around with words because, at the end of the day, the legislation would be moulded depending on what the Big 4 audit firms’ representatives fuel HMRC with.

It does, however, raise an important question. Couldn’t the British civil service employ fully-qualified chartered accountants with tax experience and get them to write new fiscal legislation and/or update existing ones?

Well, probably not, because it cannot offer them a salary equivalent to what they earn through their employment with one of the Big 4 audit firms.

Here we go again… the salaries debate! Such an awkward situation could also occur here. Most probably, it already has when the VAT legislation was drafted and installed in 1995. If that were indeed the case, the present Labour government should ensure that it doesn’t happen again. As a member of the accountancy profession, I am adamant that my first port of call, where loyalty is concerned, is indeed the profession itself. If any member of a profession keeps that in mind, such ridiculous conflicts of interest would not arise in the first place.

However, as the process of globalisation furthers and our beloved Malta strives to attract a bigger chunk of the world’s foreign direct investment, some sort of tax incentives will have to be instituted.

The government should look into attracting high-calibre talent to the civil service, offering them the right package.

In doing so, the Inland Revenue Department can rest assured that the government is receiving its fair share of revenue to finance its projected expenditure programme and, in the long term, assisting to reduce the country’s overall public deficit.

Ivan Grixti lectures financial accounting at the Universityof Malta.