[bad_user]

Also, the higher the VAT, the higher the tax evasion in those countries. One reason this happens is because many businesses are at the limit of survival and cannot afford to pay.

One would think that somebody would get a clue that reducing the VAT would make it more affordable to more companies, but unfortunately law makers are clueless.

[tormeh]

That's not really how it works. Tax rate and tax evasion aren't really linked. It's about culture and enforcement.

Anyway, if your business can't pay tax it should close and you should find something more profitable to do. I guess you can argue that some businesses of cultural or otherwise non-monetary worth should have some subsidies, but as long as the company goal is to "bring in the dough", then that's the dumbest excuse I've heard. On par with "just because".

[bad_user]

> Tax rate and tax evasion aren't really linked. It's about culture and enforcement

And how does that culture happen? Do you think people just get up one morning and decide to do tax evasion?

Of course they are linked - especially in countries in which the private sector is underrepresented and overwhelmed compared to the retired, the unemployed and the ones in the public sector, all of them assisted socially.

In a country in which 60-70% of a company's revenue goes to taxes, such that the government can deliver their electoral alms, it's not so much about bringing in the dough, but more about surviving for one more year with food on the table.

[tormeh]

>And how does that culture happen? Do you think people just get up one morning and decide to do tax evasion?

No, they get brought up by their parents to do it, usually. The justification is that the government will just waste it anyway, which can be true. Of course, the culture that breeds tax evasion is the same one that breeds poor government. Happily I don't have to deal with it.

[laurencerowe]

The correlation is almost the exact opposite: https://ideas.repec.org/p/ces/ceswps/_431.html

It's cultural, tax evasion is higher in countries which were recently dicatatorships (Spain, Portugal, Greece) or never developed a strong central government (Italy.)

[refurb]

Tax rate and tax evasion aren't really linked.

Do you have any sources that support that assertion? Increasing tax rates increase the incentive to avoid said taxes. If I'm going to go to jail for tax fraud, I'm not going to that if the rate is 2%, but I might if it's 50%.

[Someone]

I don't have sources, but I do think it depends a lot on culture. For example, in Europe (WARNING: sweeping generalizations ahead) the northern countries do not have lower taxation rates than the southern ones, but shadow economies are smaller.

Part of that is that many people in the north consider a welfare state (http://en.m.wikipedia.org/wiki/Welfare_state) worth paying higher taxes for. "I'm a happy taxpayer" is not an unheard of statement, and said without a grain of irony.

Another part is that it is harder to evade taxes in a culture where people are more honest. If the typical accountant complains if you have money you cannot account for, and cannot be bribed, it is more of a hassle to find one that complies with you (conversely, if your accountant suggests ways to evade taxes, more people will be inclined to do it)

Historically, many consider that culture to be the result of Protestantism. Many Protestants consider democratic government to be the will of god (http://en.m.wikipedia.org/wiki/Protestant_culture#Government). That makes any form of revolt against government a sin.

[Luc]

Companies don't pay VAT.

[toyg]

I think parent is referring to the classic "VAT advance": in most countries, after a business registers for VAT, after 12 to 24 months the State will calculate your "expected VAT turnout" for the following 1 or 2 years, and demand advance payment. This is because some 80% of businesses don't survive the first 24 months anyway, so the State tries to collect every penny before they go bust. Ironically, that advance payment (which is invariably too high) is often a nail in the coffin...

[laurencerowe]

That sounds nuts, but it's nothing like how the system works in the UK. As a small business you complete your VAT return and pay your balance at the end of each quarter. A large business (turnover > £2M) will make payments on account more frequently so they don't get to keep hold of the VAT that has been paid to them as long.

[toyg]

I believe it often happens here in the UK as well, although it does not involve 100% of businesses like in some other countries. It's also a one-off, whereas elsewhere it can, in some circumstances, become a recurring request.

[laurencerowe]

Can you point me to any examples? I ran a small business in the UK for several years and never heard of anything like it. The closest would be the Windfall Tax, but that targeted a small number of privatised utilities that were sold off on the cheap by a previous government. http://en.wikipedia.org/wiki/Windfall_Tax_%28United_Kingdom%...

[toyg]

Apologies, I got slightly confused with the "payments on account" scheme, which does not involve VAT in the UK. Elsewhere (I believe in Italy and France), the same approach is used for VAT as well.

[tormeh]

They can take the customer's VAT payment and stuff it in their pocket, though. A win-win for everyone except everyone who's not that business.