Countries Losing the Most Revenue to Tax Loopholes and Fraud

Germany loses an estimated $59 billion to tax abuse every year, not counting the billions lost to aggressive corporate tax avoidance similar to strategies deployed by large U.S. companies. Last year, the country established a website for reporting tax cheats, leading German newspaper Bild to compare the move to the practices of East Germany’s Soviet-era secret police.

Desperate to boost government revenue, last year the Indonesian government began a new initiative to crack down on tax cheats. The world’s fourth-largest country by population has a low tax-collection rate that in 2019 was 9.8% of gross domestic product, excluding fines and adjusted for refunds, according to World Bank data – significantly below the global average of nearly 15%.

In an effort to curb tax evasion, the Philippines Bureau of Internal Revenue last year increased fines and jail time for tax fraud. The maximum fine for evading taxes was increased from about $1,907 to a hundred times that – about $190,700. The minimum fine remains unchanged at about $572.

The U.K. government estimated last year that it lost £35 billion (about $43.9 billion) to tax abuse in the 2019-20 tax year, up from a 5% shortfall in the previous year. The U.K. is struggling with its largest postwar budget deficit – almost double the gap between spending and income caused by the 2008 global financial crisis.

The Netherlands, known as a global center for tax avoidance that allows corporations and the ultra-rich to dodge taxes in their own countries, also grapples with tax abuse from its citizens. Among measures the Dutch government deploys to fight tax cheats is a network of reporting hotlines (meldpunten) that collect reports by the public of suspected tax evasion.

As Egypt suffers a deepening economic crisis from the global pandemic, Cairo announced last year it was increasing campaigns to go after tax cheats. A common form of tax evasion deployed by the Egypt’s wealthy is through immovable assets (land and real estate) and exploiting a lack of data and property records.

Mexico’s tax revenue is the lowest of all countries in the Organization for Economic Cooperation and Development. Over the past decade, Mexico has increased mandatory electronic invoicing through a system it touts as allowing for real-time audits. A common tax-evasion tactic in Mexico is for businesses to create false invoices, often to ghost companies.

According to the Tax Justice Network, Angola loses $360.7 million a year to tax abuse, equivalent to nearly a fourth of the country’s public health budget. These losses come even after Angola implemented tax reforms a decade ago that were partly aimed at fighting tax evasion.

Pakistan loses nearly Rs 310 billion ( $1.6 billion) annually to tax abuse, according to the marketing firm Ipsos. The industries rife with tax cheats include tea processing, the illicit trade in cigarettes, and auto parts.

Singapore’s strict legal framework makes it well-known for its cleanliness and low crime rate, but it’s rife with tax abuse. The Southeast Asian city-state loses tax revenue by not doing enough to fight against unlicensed financial institutions and undeclared bank accounts.

In 2015, the OECD estimated that Colombia could increase public revenue by more than COP 15 trillion (then about $8 billion) by cutting value added tax and corporate tax evasion by half. Tax evasion in Colombia was not treated as a criminal offense until the implementation of a law in 2016.

Ireland is a well-known global corporate tax haven, costing other countries billions of dollars in lost corporate tax revenue. But the Emerald Isle is also the biggest loser in tax revenue itself due to tax abuse, including incentives to lure corporate tax havens and criminal tax evasion.