COMMENTARY — Increased fines for tax cheaters might be to

The so-called “underground economy” is estimated to be about one-fifth the size of its legitimate counterpart.

Considering that the average Canadian pays 45% of his or her salary in various taxes (including provincial, federal and sundry consumption grabs), the size of the black market is not surprising. And in the Canadian world of $40-45 billion deficits, one needn’t be a rocket scientist to be able to predict taxes will rise still further.

Most of us believe we pay too much tax and that the taxes we do pay are not put to effective use. We therefore tend to think, “Why shouldn’t we dodge the tax man, if at all possible?”

Second-hand accounts of tax evasion abound, from the story of a friend who built a house for a car dealer and received a new truck under the table as payment for the labor, to the taxi driver who recently drove me to the airport, bragging all the way about how he doesn’t pay tax on parts or service for his cab.

Indeed, it seems most people don’t see anything wrong with this behavior. The rationale is that the government wastes the money anyway, so why give it to them?

Estimates put foregone tax revenue as a result of the underground economy as high as $50 billion per year. That’s a pretty big leak.

As it stands, tax-dodgers face fines of 50-200% of the amount of tax evaded, and a possible jail term of up to five years. The problem is, Revenue Canada has limited resources and is not likely to chase after someone unless he can pay the fine.

In other words, to make prosecution worthwhile, the fine has to be large enough relative to the cost of collection.

It might make sense, therefore, to jack up the level of fines to the point where few would dare to cheat. Who knows? The government might then be able to lower tax rates as a result.

— The writer works out of The Northern Miner’s Vancouver office.