Jack Mintz: Curb evasion with simpler taxes, not more auditors — via fpcomment
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Not surprisingly, residential construction accounts for 35 per cent of the underground economy as cash deals allow homeowners to evade GST and construction firms, income tax. Lessors of real estate account for another 12.7 per cent of underground activity, retail trade 10.5 per cent and food and accommodation 7.5 per cent. The largest underground economies are Prince Edward Island , British Columbia and Quebec . Alberta and Newfoundland & Labrador seem to have the most fiscally honest folks.
The overall tax rate on GDP is about a third, so although the underground economy isn’t that big we could be losing about $23 billion in tax revenue due to hidden cash and crypto transactions.estimates that, despite increased efforts to ensure compliance, the federal tax gap was between $18.1 and $23.4 billion in 2018-19. Add 10 per cent for underground growth since then and the gap could be as large as $25.8 billion.
To curb tax evasion, economists argue for two quite different policies: raise expected penalties or provide a carrot such as lower tax rates.Article content Penalties can be increased in many ways. At one time, kings hanged tax evaders or cut off a limb for a first offence. That sort of thing is too harsh for today’s sensibilities. But we might increase the financial penalty for not reporting income or sales. People do make honest mistakes, however, so we need to allow for that. And some people may not pay their taxes simply because they are going bankrupt.
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