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Iceland declares war on tax evasion and penalises cash

Categories : Cash is a public good, Cash is trust
July 10, 2017
Tags : Cash restrictions, Europe, Public good, Social Inclusion
Iceland is exploring the possibility to impose cash restrictions as a solution to fight tax evasion but such a move will only hurt honest citizens and do little to help government's coffers.
Communication Team / Equipo de Comunicación

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 cash 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 banknote 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.

To read the original article, please click here.

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