A BIG fuss has been kicked up over the government’s drive to combat tax evasion, which would also involve the partial lifting of banking confidentiality. Opposition politicians as well as bankers have questioned the wisdom of the move which, they argue, could have the opposite of the desired effect of raising extra funds for state coffers. Some have gone as far as to say that it would lead to a big outflow of capital, putting the banks, which are going though a very difficult period, under additional pressure.
Finance Minister Marcos Kyprianou appears to be engaging more in populism than serious policy-making by presenting himself as the man who will take on the hated banks. He fired another broadside against the banks at the legislature on Monday, accusing them of violating the law by providing their customers with the facility of “secret accounts”, which were being treated as a “sacred cow”. He also declared that he had no intention of discussing this issue with the banks but would consult the Central Bank governor before reaching any decisions.
Kyprianou’s hard line may be in retaliation to the banks’ failure to co-operate with the Inland Revenue when the department is seeking information from individuals (they invariably cite confidentiality, he claimed), but as minister he should be above such political pettiness. He should understand that banks are not state tax detectives, but private businesses whose main allegiance and loyalty is to their customers. And if he wants their co-operation in order to make things more difficult for the tax dodgers, he is going about the wrong way of securing it.
The measures the finance ministry has proposed for lifting bank confidentiality are the toughest in the European Union with the exception of the Scandinavian countries, argued a spokesman for the banks. The government is taking much tougher measures than those agreed by EU finance ministers last September, whereby banks would be obliged on request to provide banking information on any citizen of another member-state. This is one thing (and from what we know it already happens when someone makes a capital statement) but it is quite another to expect banks to release all kinds of information about their customers.
The partial lifting of banking confidentiality, according to the minister, would follow an amnesty for people with secret bank accounts; they would only have to pay a reduced five per cent tax rate on these funds. The thinking is that this would still be a windfall for the government, earning it some £75 million, if speculation that money secreted in secret accounts amounted to £1.5 billion was correct. To achieve this, the government needs to have the banks on side. Trying to bully them into submission with tough new laws on the lifting of confidentiality would have the opposite effect. The funds in secret accounts would simply be transferred to banks in non-EU countries and the banks would then face serious liquidity problems which would have disastrous effects on the economy.
This is why it is necessary for Kyprianou to tread much more carefully. He is right to be tough on tax dodgers, but he should not do this by getting ultra-tough on the banks. If the banks are faced with financial problems because of the outflow of funds, the whole economy will suffer.
