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By Antonis Loizou F.R.I.C.S. – Antonis Loizou & Associates Ltd – Real Estate & Project Managers
There is a worldwide effort to clamp down on tax evasion. In my view the issue can be addressed to some extent if the consumer paying a bill has a benefit by submitting any documentary evidence to the Income Tax Department and not as it is today that the only benefit is if this is part of his income process.
So, if a household has medical bills, legal and maintenance costs of the home, etc. with a maximum (indicative) EUR 50,000 a year, some 20% (around EUR 10,000) should be deducted for income tax purposes. Of course this approach will probably benefit higher-earners who pay a relatively higher rate of income tax, rather than low-paid and others. Therefore, the absence by the receiver of a need to produce evidence (without any benefit to the payer) helps evasion and their own income tax will be a multiple of the discount that the payer faces.
All receipts should bear the name of the client / payer (this too may prove to be a problem) to avoid "collecting" receipts from some people for income tax purposes (if they themselves don’t pay, as is the case in Greece).
Many attempts were made in Greece to introduce some sort of proof by payment using cards, etc. in order to reduce fraud, but there the problem is more general and is due to the mentality of the Greek state, while we in Cyprus have a problem to supplement the income of the state from the uncollected taxes.
A reader of this column recently informed me that a well-known private hospital in Nicosia has a tariff of EUR 50 for a visit to the doctor. The cashier does not accept payment either by card or by check, cash only. But was willing to issue a receipt. The patient did not request a receipt as the medical expenses are not deducted from their own tax.
Let’s consider this case. The doctor in question is evading tax, the patient does not have a benefit and if he insists on a receipt, may pay extra. So who loses at the end of the day? First, the State by not having a proper view of receipts for income tax purposes, while the head (the doctor) has tax free earnings which also makes sense that he pays third parties (contractors, employees, suppliers, etc) with tax-free cash. I recently heard of a case where a building went up and that a large percentage was paid in undeclared cash (plus a loan to cover the rest).
This also applies to other sectors as well, such as law firms and other professions. In our sector (construction/real estate), the situation is just as tragic and it is now routine that payments are made in cash for repairs and maintenance of private homes and others where there is no deduction from income. This also complicates the of unemployment benefits, as the contractor-builder will not issue a receipt as he is declared as being redundant or unemployed and may lose his benefit. So, not only does the State lose, but it also pays out the unemployment benefit that the person declaring income would not have been entitled to.
Now, let’s look at the catering and leisure sectors. A decade ago, a foreign resident paid EUR 140,000 for the wedding of his daughter, but only EUR 80,000 was declared by the organiser.
And then there is the case of holiday villas and rentals either by themselves or by agents (foreign and local) over the internet to customers mainly from overseas and some locals. As stated by the President of the hoteliers’ association, around 17% of tourists are staying in private villas (without declaring any revenues to the municipal authorities, income tax, etc.), with the situation extremely challenging and unfair both to taxpayers and hoteliers.
The solution is simple and is often solved by "friendly" local administration employees. About 15 years ago when there was an effort to chase doctors and demanded they be shown their appointments books, doctors said the patient-doctor privilege did now allow for private data to be revealed and this destroyed the whole effort and no one wanted to pursue the matter further because "you never know when will the need them". The case of visiting foreign doctors (mainly Greeks invited by hotel managers), is another huge issue that we have not touched upon.
Finally, allow me to remind you of the case some six years where the only way to investigate the income of a kebab shop was to count the number of wrappings bought and later served. This was the only way for the Income Tax office to discover the true turnover on which no tax was paid. Similarly, now that the holiday season is upon us, I wonder how many restaurants, tavernas or clubs issue tiny pieces of paper or even tell you in person what the bill is, while in our own sector of "real estate agents", most owners refuse to pay VAT so the agent has to absorb 19% or not declare it at all with all the repercussion that may follow.
