Tax evasion: serious business!

By Marion V. Ali
Staff Reporter

Swindlers try all kinds of schemes to evade taxes and people have found very clever ways to trick the system. They cross barriers in sectors ranging from the common grocer to the well-to-do, often times in collusion with the very people whose job is to charge taxes.
In Belize, the problem is no different. Even though the various tax departments institute and implement stringent mechanisms, people find ways to beat the system. There are a number of ways they do so and the list is long.

Methods of
tax evasion

In the day-to-day running of a business, business people, mainly importers, use methods such as manipulating invoices, (also known as under-invoicing) by creating fake invoices of purchases made in foreign countries to reflect an untrue amount of their expenditure.
Sometimes they work in cahoots with disingenuous customs officers who would not verify the invoices or simply turn a “blind eye” for some kind of personal reward.
Then there is the system where importers deliberately use the wrong tariff heading when claiming their goods at the Customs Department. This is when, for example, boutiques would assign some of their imported new clothing and accessories under a “used clothing” or “gifts” category, so that their tax amounts would be less. In addition to this, they fail to present invoices showing the prices of their purchases.
In cash transactions, there is the double-accounting technique that some business people apply, which is when they use two or more receipt books to hide legitimate sales from the tax department. Some invoices are not even valid because they were not issued from the official receipt book.
Audits conducted by the tax department, however, can track this illegitimate practice and, based on their calculations, the department levies a fee that would cover the difference.
Business owners often times challenge the department in court and a number of these cases are still pending.
Other unscrupulous entrepreneurs try to outsmart the system by constantly chang-ing the name of their business (known as sales suppression) or relocating the business under a new name to avoid tax charges. Placing the business in someone else’s name renders past bills for taxes null and void, so some business people go this route to evade paying their fair share of taxes.
Still others split their business into smaller entities with a number of outlets under different registrations so that the fraud might go undetected, even though these outlets are all owned by same person or family.
Purchasing goods in another person’s name or on cash receipts which cannot be traced to a specific business is another form used. so that their names are hidden.
There is a minority group of people who claim their religion does not permit them to use cash registers, so they do not have a recording of how much money they make. Yet some of these same people are seen in luxury vehicles and using the latest model cellular phones.
People who are in the entertainment industry are required to register with the GST Department, even if the scope or size of their promotion is considered to be small and the proceeds are below the monthly or annual threshold. Many of these promoters never comply with the law.
Registering with the department enables the tax collectors to monitor the profits of the promotion by keeping a track of the tickets sold and, where necessary, make refunds, as it does to every other business that falls beneath the threshold, if indeed their profits were below the taxable amounts.
Perhaps the most common method of evading taxes, however, occurs daily when we pay for everyday items, such as purified water, a fried chicken, or for vehicle repair. When the grocer or the repair shop, registered with the General Sales Tax Department, does not give you a receipt, there is no way of tracking that transaction. Hence, the GST Department never receives the tax (12.5 percent) for that item or service rendered, even though you have paid for it.
Registrants who do not issue receipts to their customers commit two types of infractions: failure to issue a tax receipt, and failure to utilize a programmable cash register, which records cash transactions for tax collection purposes. If the GST Department is successful in prosecuting these businesses, the penalty is 10 percent of the total collections, and this is retroactive for up to 24 months prior to the discovery of the offense.
Commissioner of the GST Department, Betty-Ann Jones, says that “the underground economy is so well established that it is difficult to say what percentage of the business community is corrupt.”
Some businesses, Jones says, claim they don’t register with the GST Department because their proceeds fall beneath the threshold, which is $75,000 annually or $6,250 in sales per month, whichever is collected first. These are the amounts a business collects that are taxable under the law. It is an offense to be operating a business where the collections amount to more than either of these and the business owner/operator is not registered, says Jones.

the culture

Jones advises the public that the General Sales Tax is a self-policing tax and it is up to the buyer to always demand a receipt upon making a purchase. “We need to change our culture,” she said. “People are entitled to a receipt when they buy something or receive a service.” This is one of the ways the public can help the GST unit better police the business community.

What people should know

Aside from demanding your receipt, the slip you receive should clearly indicate a breakdown of what the actual price of the item is and what is the tax charged. Even when some businesses give receipts, they still use “creative accounting” in order to pay themselves instead of the GST Department for the tax charged.

Receipt Deceit

Some receipts list certain items under different categories. Still others will show nothing more than the price you paid. Receipts should show whether the items are taxable and it should show how much tax is charged.

It is important for people to note that when you shop at the bigger supermarkets that are registered with the department, the GST is already charged on the shelf price. When you shop at smaller businesses, the onus is one the consumer to compare the price of products with the price of the same products at the legally registered businesses.

Nickel & Dime
slight of hand

A few grocers are dishonest enough to charge the same price or more for the same product, even though he claims his business is not big enough to be registered with the department – meaning they profit from tax proceeds without paying the tax.
Aside from the tax evasion schemes, consumers need to also be wary of sharp mark-up on prices of products. This brings into sharp focus the purpose and responsibility of the Bureau of Standards, which regulates price control on items sold in supermarkets, stores and shops.
The General Sales Tax Department conducts regular on-site inspections at new businesses and those that claim they fall beneath the threshold and looks for “red flags” and differences in the actual amounts collected and the amounts the merchant or business owner claims he collected. If there are discrepancies in the accounting, the owner is taken to court.
The department also conducts advisory visits to educate business owners of their rights and obligations.
According to the General Sales Tax Jones, there hasn’t been anyone jailed for having evaded GST because at the eleventh hour, offenders either pay their fines, or have someone to bail them out. There have been a number of convictions how – ever, since 2013. These people have either paid, or are in the process of appealing the ruling.
In one case, a well-known fried chicken establishment was fined well in the region of $250,000, the amount he reportedly tried to cover up in taxable sales.
Jones told the Reporter that in 2014, the Government of Belize collected $274 million in General Sales Tax. This is $56 million more than the projected amount. For 2015, the projection is $247 million.

Tax evasion at Customs level

The Customs Department is also a tax evasion haven, as corrupt officers are known to aid in the evasion process and crafty businessmen are often well versed in evasion tactics.
“Collusion and corruption is real at the Customs [Department]”, says Colin Griffith, Deputy Comptroller of Customs (Enforcement Unit), in an interview with The Reporter. Griffith admitted that “there is that ‘hook up’ between vehicle traders and customs officers” looking for some kind of a reward for undervaluing a vehicle.
“The process to value vehicles should include the transaction value”, which is the price actually charged for the vehicle or that is payable if it is on credit, Griffith advises.
He added that over the past ten years, a number of customs officers from the ranks of clerk to grade one, which is a six-stage bracket, have been taken before the Public Services Commission and have been criminally charged jointly along with importers for fraud.
Officers have lost their jobs for extortion and fraudulent evasion and others have been dealt with administratively.
The public has become even more creative when dealing with the Customs Department, whether it is in importing vehicles, goods or chemicals, by using one or more of the same crafty techniques described before.

CFZ – a cesspool
of corruption

While the Corozal Free Zone offers a great many people, primarily from Mexico quality merchandise and groceries at rock bottom prices, it has also played its role in underground usefulness. “The Corozal Free Zone has become a cesspool for all kinds of illegal activity”, Griffith explained, because of its strategic location between Belize/and Mexico.

Vehicle cloning

The free zone is outside of the Customs and Immigration juris-diction. Hence, there is no requirement to show any kind of documentation to enter its perimeters. People connected to the Free Zone simply drive into empty warehouses in the compound where “vehicle cloning” takes place. This is a process where license plates and VIN number stickers are reproduced and or swapped from older vehicles and re-used on newer vehicles.
The vehicles are then driven back out of the warehouses and when they enter the public domain, if unsuspecting traffic personnel, only rely on the stickers and don’t run a thorough check in the veracity of the VIN number actually embedded on the vehicles, no one would ever know these vehicles are uncustomed or were perhaps from another country.
Eventually these cars are integrated into the legal system and are passed off as legitimate vehicles, and their owners, if not caught, never pay the duty on them.

Wetback Vehicles

Porous borders don’t help either. In the west, when river levels are low, vehicles from Guatemala can be driven across and go undetected when they enter Belize.
Large scale stolen vehicle operations were dismantled over the past ten years when joint police/customs personnel mounted special investigations. People who have been caught in these types of scams, but never convicted for varied reasons, have included wealthy businessmen amd in one case someone from the legal profession.
A few years ago, a fleet of 20 stolen vehicles were repatriated to Guatemala. In cases where the vehicles are not stolen but duties went unpaid, they are assigned to various government departments.
The Customs Department’s In-vestigations Unit also tries to counter the movement of contraband goods, such as liquor and cigarettes, which have also brought the disingenuous merchant lucrative returns.

The regular swindler

Even travellers who step off the plane evade duty charges on household appliances and technological gadgets they bring to sell, by taking the items out of their original boxes and including them among their clothing and carry-on luggages. These people then enter the “Nothing to Declare” line at the customs desk and pass through without ever paying a dime for items they usually make incredible profits on.
Griffith admits that the Customs Department may never be able to stop every incident, but he pointed out that through a Customs Harmonization Bill being implemented in CARICOM countries, a lot of these moves will be detected and addressed.
The new system, ASYCUDA, which is an Automated System for Customs Data, which Belize has already adopted, is a modern set of procedures in dealing with the importation of goods. It calls for more stringent checks and balances throughout the importation process, from the point of purchase to the point of sale, even if that sale is made two years later. The compliance level has already improved, Griffith says, and now customs duties can be paid online, through the new system.
The senior customs officer says that amidst the corruption that has plagued the department over the years, “we have made enormous strides when it comes to enforcement. We still have major problems, but we have a good cadre of officers at the Enforcement Unit and we work very closely with the US, Mexico and Guatemala to address these issues.”
Meanwhile, according to Joseph Waight, financial secretary at the Ministry of Finance, whatever is collected from the tax departments is deposited in the consolidated fund and used for salaries and other expenditure. “When there is a deficit in the projected collections, the Government either has to make a downward adjustment of its spending, or borrow to make up the difference, or if it is over a long-term then it would have to consider raising existing taxes”, Waight told this newspaper.
When the collections surpass the projections, then the government has more money to invest in development borrows less.
GOB has seen a marked increase in revenue upon assuming the running of two companies registries, and has not raised taxes for the past three years. With public vigilance and cooperation, it can continue to operate in this way if the projected taxes are collected and or surpassed.

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