1 in 5 banks in region says tax evasion will more than double this year despite new rules: Survey

Pedestrians walking past buildings in the central business district of Singapore. PHOTO: BLOOMBERG

SINGAPORE - One in five banks in the Asia Pacific expects tax evasion in 2017 to increase 100 to 500 per cent over last year's levels according to a recent poll by data analytics firm Fico.

A further one in five senior fraud managers surveyed said they expect the increase to be up to double last year's levels. While only 22 per cent of respondents felt tax evasion would decrease this year.

This is despite new reporting regulations being introduced this year to arrest the problem. In five months' time, a new international standard will be rolled out that governs how tax authorities in participating countries exchange data relating to the bank accounts of taxpayers.

"The goal is to make offshore tax evasion impossible," said Mr Dan McConaghy, president for Fico Asia-Pacific. "More than 100 jurisdictions have already signed up to the automatic exchange of information (AEOI) as part of a common reporting standard (CRS). Its introduction this year will see the initial wave of Asian countries start to share tax information on individuals from September."

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India and Korea will be the first countries to commence reporting in 2017, with Singapore, Australia, New Zealand, China, Japan, Indonesia, Malaysia, Brunei, Macao and Hong Kong due to start in September 2018.

The AEOI requirement will see bank account information reported by the banks to the domestic tax authorities, who will then exchange the data with tax authorities in partner countries.

"Tax evasion was thrust into the spotlight following the Panama Papers scandal last year," said Mr McConaghy. "Closer to home we have also seen high-profile tax evasion stories in Korea and India."

Mr McConaghy said that in order to facilitate the exchange of information required, many financial institutions will need to enhance their tax compliance methods. Banks can adopt an automated compliance process to implement the various identification, classification and reporting requirements.

Currently, banks are a long way from this goal, with 68 per cent of respondents in the survey saying they do not currently have the resources or solutions to identify and report the accounts of private persons and companies to other jurisdictions, he said.

Respondents to the survey also highlighted the strong link between tax evasion and money laundering, with 81 per cent saying it is critical to import new data sources like the Panama Papers into anti-money laundering (AML) solutions.

"Financial crimes such as money laundering and tax evasion are escalating in priority for governments across the globe," said Mr McConaghy. "As we head towards a new era of data collection and sharing in a global environment to prevent tax evasion, banks will need systems that are fast and accurate to comply."