Michael Hlinka: Tax evasion by restaurants a sign of deeper problems in system
- November 12, 2009 9:17 AM |
- By Michael Hlinka
Money Talks is a business column from CBC radio.
By Michael Hlinka, CBC business columnist:
Nobody likes to pay taxes. That’s pretty obvious. However, if there is one group in Canadian society that is most likely to be hostile about it, it’s the entrepreneurial class.
As an owner, you bear 100 per cent of the business risk. You’re the one who gets paid last – all of your suppliers and employees get what they’re owed before you see one lousy dime. Then at the end of the day, if you turn a profit, the government steps in and takes a third off the top.
Well, according to the Canada Revenue Agency, the restaurant industry is fighting back using technology … with software known as zappers and phantom-ware.
This software is added to the electronic cash registers that are standard equipment in Canadian restaurants. Phantom-ware is installed at the factory; zappers are added on after the machine has left the shop floor. And what they both allow is the restaurant owner to delete sales after the fact.
The ordering systems that most restaurants use place the orders in the kitchen and at the bar. This allows the establishments to serve customers efficiently. But this means that the sales are recorded by the cash registers. Zappers and phantom-ware let the restaurant owner delete some of those sales at the end of the evening. This understates the revenues that were actually generated – all in an effort to evade paying taxes.
There is an important difference between avoiding tax, which is legal, and evading tax, which is illegal. The two-year investigation by the Canada Revenue Agency has uncovered at least $40 million in undeclared cash sales. However, when you consider the comments by a CRA spokesperson, “Preliminary work indicates that it is prevalent,” it makes you think that this is the very thin edge of an extremely wide wedge.
According to Statistics Canada, operating revenues for the restaurant industry are in the neighbourhood of $16 billion. Therefore, if prevalent implies, say 5 per cent, we’re talking about $800 million of undeclared profit and over a quarter of a billion in unpaid taxes.
What to do about it? If you think the problem is the software, then go after the businesses that are providing it. This summer, the Quebec government went aggressively after a Laval-based cash register supplier accused of installed phantom-ware in its machines.
If you think that the problem is restaurant owners, then it implies that lots more enforcement is necessary.
However, if like me, you think the problem is a tax code that penalizes business unfairly by taking one-third of what it makes, then the remedy is a simple one: Eliminate taxes on corporate profits, replacing the lost revenue with higher consumption taxes… including higher taxes on restaurant meals. Because even though no one likes to pay taxes, everyone recognizes that they’re necessary.
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