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Canada's Tax System Is Overdue For An Overhaul

12/18/2015 04:32 EST | Updated 12/18/2016 05:12 EST
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The first time it happened I was taken aback.

A Canada Revenue Agency employee approached me after I had given a talk to a community group in Charlottetown about tax havens. She shared her frustrations and concerns. Mismanagement and misplaced priorities, she said, were hobbling the capacity of the agency to do a good job on behalf of Canadians. Staff were being forced to throw the book at ordinary taxpayers who had simply made small errors in their tax returns. They were no longer able to exercise discretion or arrange for more flexible payment plans. Meanwhile, big time tax cheats were getting off lightly.

Over the next six months it happened again and again. Toronto. Saskatoon. Victoria. The stories varied. But the themes were the same. We couldn't ignore them.

The result is What is Wrong at the CRA? And How to Fix It. It is based on interviews with 28 current and recently retired tax professionals at Canada's national revenue agency. Temperamentally, this group of people plays by the rules. And they were very aware of a code of ethics that threatens discipline for even the most general discussion of how well you think your agency is serving the public. Yet, they were willing to take this risk in order to blow the whistle on what they saw.

What they revealed wasn't pretty.

Many said that major investigations or prosecutions against large companies and wealthy individuals had been dropped for reasons that were unclear to them. They spoke repeatedly of lobbyists and politicians intervening during the investigative process. They were perplexed and frustrated when their superiors spiked these cases -- many of which had millions of dollars in back taxes at stake.

Most expressed concern about the staff layoffs, shutdown of enforcement offices across the country and the confusion engendered by seemingly endless reorganization efforts.

Some worried about the high attrition rates of their colleagues -- experienced professionals. There was some cynicism about how investigators or auditors could find themselves on the end of not so subtle job offers from the same firms they were investigating.

There's much more. But these concerns alone warrant an investigation by Minister of National Revenue Diane Lebouthillier.

There is little argument that Canadians deserve a fair tax system.

When she agreed to take the job, Lebouthillier got a detailed letter from the prime minister outlining his expectations for transparency and accountability:

"It is my expectation that we will deliver real results and professional government to Canadians. I will expect ministers to: track and report on the progress of our commitments; assess the effectiveness of our work; and align our resources with priorities, in order to get the results we want and Canadians deserve."

Trudeau also promised in an open letter to public servants that "We will introduce a significant overhaul of the Canada Revenue Agency (CRA), including doing more to combat international tax evasion, and ending the political harassment of charities."

There is little argument that Canadians deserve a fair tax system. It is unacceptable that there be even the slightest perception that corporations and wealthy individuals can avoid tax investigations by hiring a lobbyist or high-priced tax lawyer. The minister should be demanding answers -- on behalf of all Canadians -- from her senior managers.

During the course of our interviews we were struck by the fear and mistrust that these 28 professionals had about coming forward. Theirs weren't personal vendettas. They were concerned about the integrity of a tax system they had served for decades.

There is $199 Billion of Canadian money in tax havens. Most of it untaxed. That figure has grown in tandem with the diminished capacity -- or political will -- to keep up with multinationals and wealthy Canadians who use tax havens to avoid paying their share.

Canada is bleeding money because our tax system hasn't caught up to 21st century practices.

It flies in the face of fiscal prudence that government has no data on shortfalls in tax revenues from the unchecked use of tax havens and other profit shifting schemes. But tax justice watchdogs estimate an annual loss of $6 to $10 billion from this practice. Few of these Canadian cases are being pursued -- a fact that is well-known in the international tax avoidance industry.

Politically, Canadians are currently onside with the concept of deficits to finance needed infrastructure. But the prime minister and Madame Lebouthillier should not underestimate Canadians' ability to do math. It makes little sense to run a $10 billion deficit, if we lose nearly that much every year to unchecked tax schemes that line the pockets of the powerful.

Canada is bleeding money because our tax system hasn't caught up to 21st century practices. An overhaul is long overdue.

The report recommends these measures to help fix the CRA:

• Prioritize and prosecute large tax cheaters

• Boost the audit, investigative and compliance capacity of the CRA

• Close tax loopholes and improve corporate tax laws

• Support production of a Tax Gap Report

• Become a leader in global efforts to tackle tax havens and reform corporate tax rules, including championing the interests of developing countries in tax justice.

We hope that our new report will help the Liberal government on how they could carry through on their promised overhaul.

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