20th September 2023
Money exchanges, cryptocurrencies and something a tad different! Plus we hear from the finance minister of a Middle Eastern country on their key reforms to tackle tax evasion. Yes, folks, it’s time to delve into the latest, eclectic mix of global news stories with countries yet again investing significant resources and redoubling their efforts to catch the perpetrators of tax evasion and fraud in a bid to claw back the many millions lost in tax revenue annually. For contractors, the message could not be any clearer: failure to adhere to local tax and employment regulations can land you in deep trouble.
Our first story might bring back memories of the popular British sitcom Steptoe & Son although for Brazilian authorities this is no laughing matter as they combat tax evasion on a big scale. As reported by S&P Global Commodity Insights, tax was evaded on roughly 30% of ferrous scrap (compared to 5% five years ago), which is the equivalent of four million metric tonnes of a total of 12.5 million. This has as a result caused prices to fall. “The main losers are state governments and this is happening in all of Brazil’s states,” said Clineu Alvarenga, president of the National Recycling Institute (INESFA).
The Imposto sobre Circulaçao de Mercadorias e Serviços (ICMS) tax is currently levied at 12% for sales that take place between the 27 states, albeit tax is exempt when trading interstate. There are also 7% and 2% arrangements for some. False receipts showing that trading took place inside a state have led to widespread tax evasion. The scrap issue will be voted on at the end of 2023 when the current tax reform is finalised, having been approved by The Chamber of Deputies in July 2023. It won’t come into effect until 2027. The largest ferrous scrap generators are in the states of São Paulo, Minas Gerais, Parana and Santa Catarina.
Over in India, informal money exchanges or hawalas and tax evasion techniques are causing authorities no end of headaches. While hawalas are a traditional way of transferring money between states and countries via intermediaries, they are also proving to be a breeding ground for illicit money laundering. At the heart of the problem is a lack of transparency, which plays into the hands of criminals who take advantage of the lack of regulatory controls. The lost tax revenues would help improve public services and infrastructure. The Prevention of Money Laundering Act (PMLA) was passed by the Indian government back in 2002.
Meanwhile, the South Korean city of Cheongju is clamping down on tax evasion on digital currencies, having formally asked seven currency exchanges to provide transaction information on 8,500 residents. Local authorities have said they will confiscate the digital assets (which they can do by law following a change in the country’s tax code in 2021) of those accused until tax obligations are met. Over KRW 268bn (approx. £160m) have been recovered by local municipal governments from both individuals and corporations. Bithumb is one of the digital currency exchanges targeted by the South Korean National Tax Service (NTS).
No let-down in the global tax evasion crackdown
Amid national security concerns, Kenya is striving to stop the adoption of Worldcoin, one of the world’s largest privacy-preserving human identity and financial networks that collect biometric data. Addressing a parliamentary committee, Colonel James Kimuyu raised concerns about tax evasion from Worldcoin transactions and the impact this will have on foreign exchange systems. The Kenyan government suspended Worldcoin’s operation in August 2023 with the country’s High Court subsequently ordering a stop in processing biometric data pending an ongoing legal case against the company.
In a fascinating interview on the International Monetary Fund (IMF) website, Jordan’s finance minister, Mohamad Al-Ississ, who has been in office since 2019, spoke of his country’s progress in establishing monetary and fiscal stability. Citing ‘black swan’ events such as COVID, the Russia-Ukraine conflict and global stagflation, which exacerbated the challenges faced by his country, he went on to stress the importance of the support received from financial institutions such as the IMF on countries such as his own. Al-Ississ reiterated the need for resources to be spread fairly so that countries in need aren’t ignored.
A desire to clamp down on tax evasion has also been a top priority for the Jordanian government as it seeks to raise tax revenues in order to help reduce the country’s deficit. “On the revenue side, we tapped into fighting tax evasion and avoidance rather than raising marginal rates…we focused on improving the efficiency and equitability of revenue collection. We closed tax loopholes via legislative changes such as transfer pricing, unified the tax administration throughout the country, cracked down on tax evasion, and unified rates to limit arbitrage across multiple categories,” Al-Ississ explains.
From crypto exchanges to scrap metal trading, global tax authorities are spreading their tentacles, tightening their grip on tax evasion. Global contractors must be on their guard to ensure they meet all local tax obligations. Our 6CATS International experts can advise on all compliance matters.
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