Summary:
Enact a law to enable private companies, regulated by government, to pursue serious tax evaders; anyone caught would have to pay the tax evaded back to government and also the same amount to the company that caught them. It would reduce government costs and increase tax revenues, a real win-win, and also shows the way forward for how similar approaches could be used to fight serious organised crime.
Policy:
Billions of tax revenues are lost to tax evasion annually, in the UK and around the world, and governments have been largely ineffective at clamping down on that evasion. Investigative journalism has exposed some evaders, but there remains a big industry enabling tax evasion for the richest in society.
Governments lack the resources needed to go after these evaders as they are not certain of getting a return, and since there is vastly more money to be made in helping rich people evade tax than there is helping governments prevent that evasion, most of the best and brightest people are involved in evasion.
I therefore propose flipping that equation on its head by outsourcing tax evasion to the private sector.
Companies going after tax evaders would have to sign up to be regulated by government to prevent abuses, but the returns could be huge.
A new law would be implemented specifying that anyone caught evading tax would not only have to pay all of the tax they had evaded, but would have to pay back double the amount as punishment. The government would receive one half of the money repaid (equivalent to all the tax that had been evaded) and the private company that found the evader would receive the other half.
To ensure only truly wealthy people were targeted, a minimum evasion limit would be created, starting at £50,000.
Given that billions of pounds of taxes are evaded each year, this would overnight create a multi-billion industry, attracting talent from all sectors of society.
Furthermore, as the risk of being caught out for tax evasion increased, people would be disincentivised to evade, helping to increase compliance and government revenues.
Part of the law would also be protection for whistle-blowers, so anyone involved in aiding tax evasion would be able to blow the whistle on their clients; not only would they receive immunity from prosecution, they would also receive as payment the money evaded. This law would be retrospectively applied, creating a large incentive for whistleblowing and further increasing the risks of tax evasion; remember, not only would the money evaded have to be paid, the person would have to pay back double.
The key to the idea is that the private sector going after evaders would innovate and iterate just as fast as evaders did trying to overcome the problem; governments are too slow and cumbersome to effectively address these issues, and lack the resources required to hire the best people and the best technology, so it needs to be devolved down to nimbler organisations.
The idea could also be applied to serious organised crime; police struggle to get the resources to go after SOC, but if private companies knew they could make billions of pounds from chasing these organisations down, it would attract massively talented people, backed by large resource, to the fight.
While there would need to be a lot of work carried out to craft the laws and burden of proof required to prosecute tax evaders under such a scheme while protecting innocent people from harassment, such a process should not be beyond the ability of government’s lawyers and lawmakers, and the laws could be designed to constantly evolve as the regulated companies notified government of new methods used by tax evaders and suggested what they needed the laws to change to in order to be able to prosecute them.
It’s a chance for governments to reduce policing costs and increase tax revenues at zero cost or risk to the public purse, a true win-win, and opens up a very interesting space for innovation in the law, to make sure it keeps up with criminals while also ensuring innocent people do not suffer.
1784-11