Vol. 474 No. 8
23 Mr. Foley asked the Minister for Finance if he has satisfied himself that penalties averaging 4 per cent are a sufficient deterrent to tax evaders particularly in view of the percentage of taxpayers which the Revenue Commissioners can audit in a given year and that the statutory allowable penalty for tax evasion is 100 per cent; and if he will make a statement on the matter. [3421/97]
I am informed by the Revenue Commissioners that experience to date suggests that the level of penalties, when combined with statutory interest charged in audit settlements, is more than adequate to provide a significant deterrent to tax evasion and to ensure the existing high level of tax compliance is maintained.
The level of penalty will vary with the type of audit, the nature of the adjustments to tax liability that may be required, whether they are of a technical nature or more serious, and the degree of co-operation received from the taxpayer.
The 4 per cent average penalties mentioned by the Deputy related to 1994 audits. In conjunction with the statutory interest charge, which is of a penalty nature, interest and penalties amounted to 23 per cent of the additional taxes collected following audits completed in 1994.
The 4 per cent average penalty had increased to 10 per cent in 1995 and 12 per cent in 1996. When taken with the statutory interest charge this brought total interest and penalties up to 32 per cent and 34 per cent respectively, of the additional tax liabilities involved.
This level of penalty imposition is quite significant. Where audit settlements cover a number of years, the capacity of the taxpayer to pay the tax outstanding in addition to a very high amount of statutory interest may be at issue. Many of the audit settlements are from borrowed funds. This puts considerable strain on the liquidity of the business concerned. With the penalty level mentioned the impact of a tax audit is sufficiently significant as to ensure future tax compliance.
I am advised by the Revenue Commissioners that the level of penalties is kept under review in conjunction with the various other measures they are taking to promote compliance.
