Iceland Proposes A Novel Solution To Tax Evasion

Minister of Finance Benedikt Jóhannesson held a press conference today wherein he announced that the Icelandic government has “declared war” against tax evaders, in the wake of reports issued by two different government workgroups on imports and taxes. Benedikt is also the chairperson of the Reform Party, and his position is especially interesting in light of the fact that one of his own party’s MPs, Pawel Bartoszek, recently declared that “taxes are violence”.

But the most interesting part of this story is what these workgroups recommended be done to combat tax evasion.

The workgroups estimate that the money lost to tax evasion comprises anywhere from 3% to 7% of Iceland’s GDP over the last 30 years. To combat this, the groups recommend increasing business transparency and making it more difficult for businesses that go bankrupt to simply get a new identity number – or kennitala – and start up again.

However, these workgroups also believe that reducing the use of cash in general will help fight tax evasion. To that end, they recommend taking the 10,000 ISK banknote out of circulation immediately, and to take the 5,000 ISK banknote out of circulation in the near future.

This particular proposal is not going over very well.

RÚV reports that Teitur Björn Einarsson, an MP for the Independence Party (which leads the ruling coalition with the Reform Party), considers it a “flawed” idea. Radio personality Máni Pétursson took a stronger stance, calling it “a disgusting attack on the public of this country”.

The idea does have its defenders, though, amongst them economist Jón Steinsson, who said he believes it would “set up a roadblock” for those who intend to cheat on their taxes.

The proposal still needs to be put up for a parliamentary vote, but initial reactions at least indicate the matter is far from a foregone conclusion.