The Taxman Cometh

It was a sight calculated to make a revenue agent cry. The Roman nobleman, due to be tapped for several years' back taxes, welcomed the man from il Fisco to a scene of genteel poverty. Instead of valuable paintings on the apartment walls, there were only pale squares. The closet held a couple of threadbare suits. The prince offered the agent a Nazionale cigarette from a Marlboro package, explaining that he could no longer afford the real thing but had to keep up appearances.

Visibly moved by the evident decline of a famous family, the embarrassed agent left, and the subsequent tax settlement was sympathetically small. Meantime, the prince retrieved his priceless paintings and handmade clothes from the portiere, or janitor, who had helpfully hidden them when the inspector called.

As that classic incident illustrates, confounding the taxman is one of the world's most popular unsung sports. It is usually played in the spring, and like polo, it is excelled at by the very rich. The rules vary widely. Indonesia, for instance, makes the game laughably easy by merely asking taxpayers to register and pay up, and ignoring those who do not.

Other countries, such as Japan and France, do not consider evasion a serious crime, but merely fine wayward taxpayers. In France, moreover, longtime evaders benefit from a statute of limitations; the authorities overlook all but the past four years. One woman who was recently apprehended after 27 years of nonpayment was not assessed for the first 23 years.

Illegal tax evasion is not as popular in France as it might be, however, since it is possible to avoid many taxes in an entirely legal way. A case in point is Premier Jacques Chaban-Delmas, who by taking full advantage of his lawful deductions paid no taxes from 1966 to 1969 (TIME, Feb. 28). Deductions of 20% to 30% are allowed journalists, pilots, car salesmen, life insurance inspectors, dancers, singers, musicians, chauffeurs and hat designers, compared with 5% to 10% permitted printers or coal miners. The generous deductions that France allows for children are not taken from income but from tax payable. "That is one reason rich industrialists in northern France often have eight or ten or twelve children," explains an official of the Ministry of Finance.

Other countries are even more generous. In the Philippines, a taxpayer can deduct not only his immediate family but unemployed brothers, sisters and even in-laws. Wealthy Filipinos frequently incorporate themselves--and claim business exemptions for rent, transportation, servants and even their nightclubbing and casino losses, counted as public relations expenses. No one has ever been convicted of tax evasion in the Philippines.

As a general rule, the more developed a country is, the more efficient are its methods of collecting taxes. Artful citizens of such nations frequently look for tax havens abroad. West German actors, for instance, often incorporate themselves in Switzerland, where the top tax rate is 35%, v. 53% at home (a loophole that the German government is trying to close by court action and a new tax treaty signed last year).

Other popular havens include Liechtenstein, Luxembourg and Monaco. In the Bahamas, there is no income tax at all, and on the English Channel island of Sark the rate is 6%. For creative artists who can qualify, probably the best haven is Ireland, where, in the name of a Celtic revival, total exemption from income taxes was granted three years ago to bona fide resident writers, artists and composers, both Irish and foreign. So far, more than 300 have been granted exemptions.

Balcony Tax. No country has a system quite as complex as Italy's. Former President Luigi Einaudi once estimated that if every tax law were fully applied, the state would collect 110% of the gross national product. Italians pay special taxes on pianos, dogs and even balconies. Every time there is an earthquake or flood, a new tax is decreed to aid the stricken area, and it sometimes remains in force for decades. In all, a salaried worker can pay as many as 26 taxes. A radical tax reform is due to take effect in 1974. In the meantime, many Italians follow the view of the Vatican weekly L'Osservatore della Domenica, which once advised that a truthful tax declaration might bring "irreparable damage to the man himself and to his business."

In some nations, the days of easy evasion are numbered. Brazil, for instance, has set up a computerized collection system, with the aid of U.S. advisers. Virtually every document, from land titles to promissory notes and even doctors' receipts, now requires a tax number. Says a wealthy Brazilian businessman: "We are all running scared."

Japanese tax collectors are feeding into their computers reports of businessmen buying new villas or handing out large tips, and even rumors about those who can afford mistresses--all to be stored until tax time comes round.

Nigeria has hit upon another drastic form of crackdown. Big-time defaulters are blacklisted from state receptions and cocktail parties. The penalty is harsher than it sounds, since no businessman is considered important unless he is seen regularly at official functions.

In Uganda, President Idi ("Big Daddy") Amin has ordered roadblocks of troops and police to check on tax receipts and decreed that evaders--those lacking receipts--will be treated as kondos, or armed robbers, and shot on sight. Since the technique was introduced last year, officials proudly report a "marked improvement" in collections--though trigger-happy soldiers and police injured 150 tribesmen at one roadblock last February in the town of Soroti.

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