Sudhamo Lal, director general of the Mauritius Revenue Authority (MRA) talks to us today about the tax system, tax evaders and the various methods used both to track down offenders and to persuade tax-evaders to come clean.

¦ Mr. Lal, I’m sure you know why we’ve come to talk to you today. It is that time of year again when you put your hand deep into our pockets. Don’t you feel bad about doing that every year?

Oh no! On the contrary. I think that putting my hand into your pockets is the most sacred duty I’ve ever performed. Trying to get resources from the people to use for the economic development of the country and to take care of the poor and the underprivileged, if properly done, is a sacred job.

¦ Is it in fact being done properly?

We believe we are doing it efficiently. Of course, the whole issue of tax policy and who should pay and to what extent we should pay and then how resources are spent is a much broader picture and outside the scope of the MRA but we believe the system of tax collection is working well. And, in Mauritius, tax rates are not very high, the collection system is very simple and we are trying to make it more efficient.

¦ Simple does not necessarily mean fair, does it?

When we say ‘simple’, we are talking about tax administration. As to whether the system is fair or not, again it has to be seen in a broader context. What we do is to ensurethat we have a system where, whatever people have to pay, they pay it with the least possible pain.

¦ How efficient are you in collecting money from the informal sector?

We are, in fact, reasonably okay as far as collection of tax from the informal sector is concerned. We have developed a strategy to track down tax payers.

¦ How do you go about getting the money from those who are making it and hiding it?

We collect the data of economic transactions. Anybody who makes money has to make purchases, sales, expenditure, investment etc. There must be economic transactions. We collect details about the purchase of property, vehicles, machines, international travel etc. Also, those who are making money have to keep it somewhere. So we get the details from the banks, interest data etc.

¦ And how scientific are your computations?

Well, we would not be able to reach the last rupee but we are able to classify people in certain categories by zooming in on where they live, where their children are schooled, where they get medical treatment, how much their electricity, water, telephone bills etc. amount to.

¦ Does this enable you to track down drug dealers for example?

Tax is neutral. It does not differentiate between a narcotics income or an income from the sale of other goods .

¦ As long as they pay you, you don’t care where the money comes from…

(Laughs) As a taxman, my job is not to track down narcotics smugglers but to impose tax on tax evaders. Ethics are your job as an opinion maker, but on customs administration, we have a policy of zero tolerance towards the entry of drugs and we take effective action.

¦ What I mean is, suppose you catch these tax evaders and you suspect that they might be in narcotics, do you just tell them, “Give me the money and do what you like”, or do you question where the money comes from?

If somebody spends more money than what they claim they had, that doesn’t necessarily give us any idea as to where the money comes from. We slap penalties on them but it is not our job to make enquiries into how they made the money in the first place. However, if the authorities track down cases, then we do assist them in every way. But by ourselves, it wouldn’t be possible for us to differentiate between tax evaders who have earned their money in a legal way and those who have done so through illegal or immoral ways.

¦ You recently introduced an incentive scheme, a sort of amnesty towards tax evaders, basically telling them:“if you pay now, I’ll let you off the penalties”. How many people have you managed to motivate to pay?

In 2007, we were able to mop up one billion rupees from 900 previous tax-evaders.

¦ But people who normally respond to these incentive schemes are people you would have caught anyway, aren’t they?

That’s what would have happened. But we would have had to go through the process of investigation, examination, interview, the whole lot. It would require manpower, resources, competence and skill. If tax evaders come by themselves, we dispense with the penalties. It is a win-win situation.

¦ They win and you lose the penalty?

The penalty is not the objective of the exercise. Once the tax-payer comes into the system, he will continue to pay. So even if I lose the penalty, I save on manpower and the person previously evading tax comes into the system. In a way, it’s not an amnesty but giving them an opportunity to enter the records and in return we agree not to resort to the penalties. An amnesty in most parts of the world involves some concession like ‘Okay, you pay and clear this and we forget about the past’ or ‘You clear this and you pay less’. We have a 15% tax rate and we are collecting that fully. The only concession we make is on the penalties.

¦ What about people who have arrears to pay?

Under-reporting is not the only scheme. We have other schemes for those who have arrears to pay. They can pay those arrears and we will waive the interest and penalties because the old arrears carry interest and penalties sometimes that are equal to the payment to be made.

¦ Who according to you are the biggest tax evaders?

Tax evasion is not restricted to any one category of people. I wouldn’t say that there is any specific category. Those who think that they will not get caught will attempt to evade taxes. So the first assurance I have to give them is that we have the data, we have the tracking system and we have the will to chase them. If they are not caught today, tomorrow they will be caught.

¦ What’s the penalty if you are caught cheating?

If you are caught cheating, the penalty is up to 100% of the tax. When people cheat, we take them to court for prosecution. The punishment is up to three years imprisonment. Last year, we had about 15 successful prosecutions.

¦ If you don’t want to tell us who the biggest offenders are, tell us who you target as a priority.

Let’s say the least risky group is salary earners because we have all the information. So we focus our resources on the more risky groups. And this is not subjective. The computer is able to carry out a risk analysis. All the data is collected and matched and the system points us towards where there is likely to be some understatement of income.

¦ Do we have a big tax evasion problem in Mauritius?

No, I don’t think so.

¦ You don’t think so or you’re not catching enough tax-evaders?

You know, other countries have problems identifying the tax paying population. We don’t have that problem here. If you want to do business here, you need a Business Registration Number. So you are immediately known to the MRA. Once you are known, we collect the information. And once we have the information, how could you cheat even if you wanted to? Everything is in the system.

¦ But the system will identify the big, flagrant cases. In cases where the cheating is small, is the system that efficient?

It’s a question of targeting. Salary earners, for example, are not a risky group. That is not to say that we don’t check them. We check a certain percentage selected at random. The big tax payers are all monitored. So you are left with the others. That’s where you deploy your matching system. So if you get away with it, it won’t be for long.

Touria PRAYAG

(l’express Weekly, Friday 23 March 2012)

Touria PRAYAG