The world's five most out-of-control tax agencies.
- By J. Dana StusterJ. Dana Stuster is an assistant editor at Foreign Policy. He has studied at the American University of Beirut and graduated in 2010 with degrees in English and International Relations from the University of California, Davis. Before coming to FP, his work appeared in the Atlantic and the National Interest, among other publications.
Taxes are a testy subject the world over. The controversies over whether the Internal Revenue Service was politically motivated in screening groups seeking tax-exempt status based on loaded keywords — and Tuesday’s congressional hearing about Apple’s alleged tax evasion — are just the latest manifestations of America’s distinct complex about taxation. In the United States, though, at least there are investigations into allegations of political intent; elsewhere, the politicization of the tax system is unambiguous. If the IRS is serious about hounding the political opposition, the agency’s got a long way to go — as these five countries attest.
The Russian government isn’t terribly good at keeping track of tax records — the Los Angeles Times reported last month that the "government has no idea how about 44% of the country’s registered workers are making a living" — unless, that is, you’re the subject of a political investigation. When, in March, the Russian government started investigating NGOs and civil society groups with international funding under its "foreign agents" law, state prosecutors showed up unannounced at the organizations to request tax records. That’s still happening; just today, the New York Times reported that the Levada Center, Russia’s only independent polling agency, may be forced to close because the government is targeting it with "foreign agent" provisions.
The tactic isn’t limited to NGOs, though. Auditor Sergei Magnitsky revealed a $230 million tax fraud scandal that implicated members of the Russian police, judiciary, and mafia, only to have tax charges brought against him. After Magnitsky died in prison under mysterious circumstances, the Russian government went after his former employer, William Browder, of the British firm Hermitage Capital Management, with similar charges.
When François Hollande swept into office last year, the biggest unknown was how his socialist credentials would translate into policy. Ever since, some of the biggest policy fights have centered on taxes. A one-time tax on 2011 incomes reportedly required 8,000 French households with more than $1.67 million in assets to pay more than 100 percent of their annual income, while other severe tax rates on high-earners have been struck down by France’s Constitutional Council. Some wealthy French notables aren’t waiting for the tax system to sort itself out; actor Gérard Depardieu, for instance, made a big show of renouncing his French citizenship over taxes on the wealthy. Depardieu has adopted Russian citizenship instead — but it’s OK, he’s friends with Putin.
Approximately a third of Argentina’s workers get paid off the books, part of the country’s unofficial economy and a thorn in the side of a government trying desperately to get a hold of its finances. Argentina’s Federal Administration of Public Revenue (AFIP), the country’s tax agency, has vestiges of the past: Under an old rule still on the books, if an AFIP agent dies on the job, the agency is required to try to hire the surviving spouse or a child. But it’s also begun surveiling citizens’ digital records and using satellite imagery of agricultural production to detect tax evasion. These high-tech tools can be used selectively, though, and for targeting government critics; President Cristina Fernández de Kirchner has used tax investigations to discredit opponents and AFIP has routinely targeted journalists and media organizations.
For decades, Chinese leaders engaged in half-hearted crackdowns on tax dodgers. Xi Jinping pledged to root out corruption among Communist Party officials when he became president in March, but so far politicians have primarily been targeted for accepting bribes and keeping mistresses, not tax evasion. While government officials may be getting a pass for now, the same is not true for political dissidents. The noted artist Ai Weiwei and his company Fake Cultural Development Ltd., for instance, have been slapped with $2.4 million in fines for allegedly violating tax laws.
It shouldn’t be surprising that taxes in Israel are a sensitive matter, especially when you consider the delicate arrangement the Knesset has with the Palestinian Authority. Israel collects taxes on all imports entering the country and forwards to the PA taxes on goods that wind up in the West Bank. Israel also returns to the PA taxes on Palestinian labor and purchases; likewise, though to a much smaller extent, the PA is liable for taxes collected on Israeli transactions in the West Bank. This all works fairly well — until a crisis. During periods of violence, the Israeli government has suspended the transfer of tax revenues to the PA (which, as of 2006, financed about half of the PA’s operating expenses). This included a two-year hiatus after the intifada in 2000, and more recently, a four-month suspension from December 2012 to March 2013 in retaliation for the PA seeking observer status at the United Nations. The PA didn’t get that money back, though — it was held to pay off the PA’s old water and electric bills.