Tax avoidance and Smuggling…frank approach

Samir Saifan

Tax avoidance and Smuggling are well-known practices in Syria. Despite their impact on state resources, they still influencing economic efficiency and modifying ethics without serious treatment. They still far away of direct interests.

The genuine reform stipulates divulging and highlighting the problem in order to make difficult to veil it. Studies dealing with these subjects are inefficient because limited and not published. The phenomenon stills growing and may threaten the state authority.

In Syria, there is several tax avoidance practices:

A- Hiding activities: more than 70% avoid declaring their activities.

· Foreign enterprises concessionaires who don’t declare their activities (Estimated annual tax avoidance 4 billions $).

· Unlicensed ten thousands of small and micro-enterprises and workshops (Unlicensed private industries have the equivalent size of licensed one).

· Ten thousands of private scholar courses at home…

B- Counterfeiting Bills and sales statements, particularly, in activities where the state is not involved.

C- Spurious increasing in costs in order to decrease benefits… Author mentions several overtaxed cases despite mediocre profits or even losses. But, he estimates that only quarter or third of taxes dues are paid, and that majority does not pay the (fair) tax due. There is complicity between presumed taxpayers and the state financial inspectors who falsify accounts and legalize it later.

D- Income taxes concern craftsmen, merchants, pharmacies and physicians… Officially, those categories have no obligation to present tax statements. Inspectors visit them, watch the activity and assess their income. Indeed, despite the insufficient number of inspectors, visits are rarely carried out. Corruption practices intervene in evaluating taxes depending on personal relationship in every case.

E- Entrepreneur in private sector does not declare the real number of employees in order to economize insurance contribution.

Author assesses that 5% of whom avoid paying taxes dues (the most important estimated to 10 thousands in Syria) cost the state the equivalent sum unpaid by the other 95%.

Practices mentioned above prove that Taxes, in Syria, look like fixed charges on businesses (instead of taxes depending on profit). This reality contraries the logic of tax itself.

F- Refusing tax payment in dates indicated, objecting penalty, pleading honesty (for years) and finally profiting of periodical presidential decree dispensing them from sums dues.

Tax avoidance in private sector is estimated to 3 folds the taxes actually perceived (almost 50 billion Syrian pounds).

Tax avoidance has a myriad of negative results: diminishing states revenues, increasing indirect tax, difficulties in public investment, spreading corruption practices, threaten social equity…

After enumerating the reasons of tax avoidance, author lists suggestions to face this phenomenon: New fiscal legislation (supposed to be simple and obvious), importance of transparency in ministries procedures and information, fiscal courts depending to administrative justice (instead of ministry of finance), increasing the number and the efficiency of employees in fiscal administration...

According to the article, Employees in Syrian customs infringe the law. Avoiding the payment of customs duties may take several forms as decreasing sums in import bills, modifying artificially real quantities or falsifying imported goods classification in order to obtain minus tariffs or to lower the applied exchange rate, lack of standard procedures and misunderstanding laws among different customs centers…

High tax rates applied on raw materials comparing with those on finished goods, push businessmen to import instead of manufacturing locally. This phenomenon is encouraged by same reasons mentioned above, in addition to old customs legislation incompatible with new environment and new goods, multiple rates of exchange, lack of transparency and the selectivity in controlling, weak purchase power of customs employees.

Author forwards proposition to strive against this phenomenon: Adopting new rules compatibles with Brussels tariffs, unifying exchange rates, developing new competent employees, computerization of procedures, increasing wages of customs employees.

Syrian customs receipts in 1999 are estimated 9% of total imports (the equivalent of 1.7% of GDP). Notice that this percentage includes taxes dues to both public and private sector. Consequently, the percentage of the later is far smaller.

Smuggling is the more dangerous than phenomena mentioned formally. Lebanon borders are the most affected. This phenomenon flourishes in 1980s because of: the state incapacity to provide myriad of necessary goods, high rates applied on legal imported goods, selectivity in punishing smugglers, high unemployment rate encouraging smuggling...

Finally, author lists suggestions to deal with this problem including: giving up current policy in prohibiting several goods, providing market by adequate quantities, establishing reasonable tariffs congruent with frontier countries, simplifying procedures…