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Ottawa under pressure to calculate 'tax gap' in wake of Panama Papers

The Parliamentary Budget Officer has long been trying to get necessary data from the CRA to calculate how much money is loss to tax evasion and avoidance.

Sean Kilpatrick/THE CANADIAN PRESS

The release of the Panama Papers – a massive leak of confidential documents from a Panamanian law firm specializing in the creation of shell companies in tax havens around the world – has put a spotlight on the federal government's refusal to calculate how much money it is losing every year to tax evasion and avoidance.

Experts and critics have called on Ottawa for years to figure out the size of Canada's "tax gap," which is the difference between the money collected by Canada Revenue Agency (CRA) and the overall revenue that should be generated based on the country's economy.

The Parliamentary Budget Officer (PBO) has long been trying – and failing – to get necessary data from the CRA to calculate the figure that is in use in countries such as the United States, Britain and France. In particular, the number would help to determine the CRA's efficiency at finding tax cheats and collecting lost revenue, compared with similar agencies in the world.

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Officials from the PBO met last month with senior bureaucrats at the CRA, but there has been no clear movement from the government to provide the required numbers. To this point, the CRA has only promised to "study the concept of the tax gap."

"In other words, they are going to study whether they should study it," Liberal Senator Percy Downe, an expert on tax havens who participated in the meeting between the PBO and the CRA, said on Monday. "This is another delaying tactic from the CRA after years of similar delay."

Over all, experts are applauding the current Liberal government for putting an additional $444-million over five years into the CRA in the recent budget.

"These initiatives will help ensure that all taxpayers pay their fair share, with the investment in cracking down on tax evasion and combatting tax avoidance expected to increase tax revenues by about $2.6-billion over the same period," Department of Finance Canada spokesman Jack Aubry said.

Still, Mr. Downe said if the tax gap were calculated, the CRA could determine whether it needs even more annual funding to fight against tax evasion and avoidance in Canada and abroad.

Mr. Downe is pushing a bill in the Senate that would force the government to assess the size of the tax gap, and he said he will continue his work on the file until he gets a firm commitment from the CRA.

While it is getting a funding boost, the CRA suffered a series of cutbacks under the previous Conservative government and experts said it will take years to recruit and train auditors and investigators to take on "the big fish" of tax evasion.

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"The government seems to have the right idea about what needs to be done, but this recent leak just shows how big the problem is," said Dennis Howlett, executive director of Canadians for Tax Fairness.

Mr. Howlett said he is concerned that in the Panama Papers, Canada is presented as a good country in which to set up shell companies because of lax rules on "beneficial ownership." In other words, he said, rich individuals can shield the fact they are the main financial beneficiaries of a company that is based in Canada, which encourages tax evasion.

"If you want to hide things, it's a good way to do it," Mr. Howlett said, calling for legislative changes to address the loophole.

In a statement, the office of National Revenue Minister Diane Lebouthillier said the CRA will seek to obtain any documents that are not yet in its hands to scrutinize the cases of Canadian taxpayers.

"The Minister of National Revenue has instructed CRA officials to obtain the list of data leaked through [the] Panama Papers in order to cross-reference this information with data already being obtained through the agency's existing mechanisms," she said.

The NDP said it was "revolted" by revelations in the Panama Papers, fearing there was a growing trend of taxpayers finding ways to hide their revenue from the state.

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"We have to make all of the necessary legislative changes to make it harder for people to use tax havens," NDP MP Pierre-Luc Dusseault said.

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About the Author
Parliamentary reporter

Daniel Leblanc studied political science at the University of Ottawa and journalism at Carleton University. He became a full-time reporter in 1998, first at the Ottawa Citizen and then in the Ottawa bureau of The Globe and Mail. More

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