Blog # 4- UK Government Sees Progress in the Tax Collection

In the UK the government has seen substantial growth in the tax gap. The tax gap refers to the amount of taxes actually collected and what should have been collected. The Value Added Tax (VAT) had been cut which meant a reduction in the amount of taxes collected. The HM Revenue and Customs (HMRC) of the UK have made a lot of strides in order to challenge tax evaders, close tax loopholes, and create a new unit to ensure that wealthier members in society pay their share of taxes as well. Once these problems were faced the government was able to add back the VAT and collect in areas of deficiency. The increase in the tax gap has created a better economic standing for the UK and their ability to make this financial crisis that the rest of the world is going through substantially less damaging. According to the article the tax gap was a contribution of tax avoidance which amounted to 14 percent of the tax gap, evasion which amounted to 12 percent of the tax gap, criminal attacks which amounted to 16 percent, and differences in legal interpretation which amounted to 14 percent. These numbers were stifling to see and based on the article the Chartered Institute of taxation concluded that tax evasion and legal activity was costing the exchequer, the bank account into which monies of the public are paid, three times as much as tax avoidance. Obviously in the UK there is a great deal of tax evasion going around which is definitely something that has to be dealt with.

As the HMRC tackles the problems of the legal differences and tax evasion they will see that their investment in closing the tax gap will be well worth it in the end. The HMRC cannot stop with their efforts in doing so because the gap will take time to close. The long run effects of closing the tax gap will resort in money being put back into their economy which in turn makes their economy better off. The money then trickles down to businesses that have branched out into the UK and in return it puts money into other hurting economies. Along with the businesses, citizens of the UK may even see a wage improvement. A wage improvement would give citizens the opportunity to spend more and be able put money into other economies. Socially, people's ability to spend money affects their standard of living. If wage improvements are made their standard of living would be improved.

As you saw before in last week’s blog about Fosun International investing in other companies and how their investments in such businesses would in turn be beneficial to the world’s economies by allowing cash flow to be increased all around the world. Globalization and its characteristics of international businesses everywhere around the world reemphasizes the fact that money will be put into other economies naturally as people spend money in their economy. The HMRC has made a very big step in improving their economy. Time will be the only factor in deciding how long it will take to shorten the gap and allow other economies to look within their tax collections to take similar measures. Globalization has proved to be a hero in this case, by helping hurting economies in this financial crisis.

Link to article: http://www.ft.com/intl/cms/s/0/98f7b9be-e467-11e0-844d-00144feabdc0.html#axzz1Yi4Eo6uK