Following the release of alarming reports on taxes and imports published by the Icelandic government, Minister of Finance Benedikt Jóhannesson declared during a press conference that the country will take additional measures to strengthen the fight against tax evaders.
Reports estimate that 3% to 7% of Iceland’s GDP was lost to tax evasion over the past 30 years. To prevent further abuses, experts recommend two actions. First, businesses should provide more transparency about their operations. In this sense, companies that went bankrupt should not be able to start a new activity by just getting a new ID number, as is currently the case.
Moreover, the working groups setup to analyse the situation, advised to reduce the use of cashMoney in physical form such as banknotes and coins. More and exhort the central bank to withdraw its two highest denominations from circulation, starting “immediately” with the 10’000 Krona ($97). This announcement faced strong criticism and many public figures stepped up in defence of cash. Indeed, member of the leading Independence Party Teitur Björn Einarsson affirmed that it is a “flawed” idea to believe that by reducing the use of banknoteA banknote (or ‘bill’ as it is often referred to in the US) is a type of negotiable promissory note, issued by a bank or other licensed authority, payable to the bearer on demand. More fraud will be terminated, while radio host Máni Pétursson denounced a “disgusting attack” on the rights of the Icelandic citizens.
Many governments have already begun to impose cash restrictions while using the fight against tax evasion to justify their move. Nevertheless, fraudsters don’t lack creativity and will most probably find other ways to evade taxes. On the contrary, the withdrawal of high-value banknotes will mostly benefit financial institutions, which could thus better control interest rates. The proposals will have to be voted in Parliament, but the first reactions demonstrate that consumers are absolutely not ready to give up on cash.
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