PACC Committee Meeting

STANDING COMMITTEE ON PUBLIC ACCOUNTS

COMITÉ PERMANENT DES COMPTES PUBLICS

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 11, 1999

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[English]

The Chairman (Mr. John Williams (St. Albert, Ref.)): Good afternoon, ladies and gentlemen.

I'd like to bring this meeting to order. Pursuant to Standing Order 108(3)(e), we are considering chapter 2, “Revenue Canada—Underground Economy Initiative ”, of the April 1999 report of the Auditor General of Canada.

Our witnesses today from the Office of the Auditor General of Canada are Mr. Shahid Minto, assistant auditor general; and Mr. Barry Elkin, principal of the audit operations branch. From Revenue Canada we have Mr. Barry Lacombe, the assistant deputy minister, verification, enforcement, and compliance research branch; Mr. John Kowalski, director general, audit directorate; and Dominique Short, director general, compliance research directorate.

We will start off with your opening statement, Mr. Minto.

Mr. Shahid Minto (Assistant Auditor General, Office of the Auditor General of Canada): Thank you, Mr. Chairman.

Thank you for the opportunity to present the results of our audit of Revenue Canada, now called the Canada Customs and Revenue Agency, on the underground economy initiative.

In past audits, we have dealt with other Revenue Canada programs to combat the underground economy. We previously reported on Revenue Canada's special investigations and non-filers programs for both GST and income tax, and on various other enforcement programs. We also reported on the legislative requirement to report foreign assets.

As we said in our report, tax evasion is not a victimless crime. It puts honest businesses at a competitive disadvantage, and in some cases out of business. It also causes honest taxpayers to bear the tax load of those who cheat.

The integrity of the tax system is based on the public belief that Revenue Canada operates with the basic expectation that everyone must and does pay his or her fair share of taxes due under the law. In his February 1994 budget speech, the Minister of Finance noted that when an increasing minority avoid paying their fair share of taxes, the legitimacy of the tax system suffers.

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Our report noted that the underground economy results in tax evasion and represents an estimated loss of federal and provincial tax revenues of up to $12 billion a year.

Revenue Canada has always had compliance programs to combat tax evasion. However, in the early 1990s, there was a general perception that the underground economy was a growing problem. To deal with this problem and to preserve the integrity of the tax system, Revenue Canada announced a new initiative in 1993 to combat the underground economy by allocating an additional 200 staff to its non-filers and non-registrants program and 1,000 staff to the audit of small businesses. Of the department's audit staff for small and medium-sized businesses, 35% are now involved in the underground economy initiative audit activities.

The initiative was intended to increase the chances that unreported income would be detected, to enforce the payment of taxes from unreported income, to develop new activities to support taxpayers in meeting their responsibilities, and to deter taxpayers from participating in the underground economy. Planned activities for the initiative included encouraging voluntary compliance through community visits to business establishments, educating the public, partnerships with other governments and business organizations, enforcing compliance by auditing in areas of high non-compliance, and supporting compliance efforts with additional research.

The initiative as planned was, in our view, a balanced approach to combating tax evasion in the underground economy.

I would like to now spend a few moments talking about the results of the implementation of the initiative.

Revenue Canada has recovered some additional taxes and has sent a message to tax cheats in some sectors that it is determined to deal with the problem. Five years have passed since the underground economy initiative was announced. We expected the department to measure and report clearly the tax impact and other results of the initiative's activities. This information is important to make decisions about the future of the initiative and to determine what strategies are the most effective in combating the underground economy.

We noted that the department does not report on the full range of initiative activities or on the long-term effect they have on compliance. The department reported that its activities to combat the underground economy had a tax impact of $2.5 billion over five years. However, we note that this amount included the results of its regular, ongoing enforcement programs.

In terms of tax impact, we estimated that the initiative's audit activities to detect unreported income have resulted in less than $500 million of tax reassessments over five years. And of course we all realize that the amounts eventually collected will be less than the initial assessments.

In implementing the initiative, the department narrowed its focus to audits of four sectors—construction, jewellery, hospitality, and automotive—where it believed it would have the largest and most visible impact. However, taxpayers with a high risk of unreported income exist in all sectors. In our view, a more strategic approach can be taken to improve the implementation of the underground economy initiative.

It may be time to adjust the focus of audit activities from just the four targeted sectors to include taxpayers with the highest risk of unreported income in all sectors. This could, for example, ensure that those not reporting foreign-source income would be appropriately targeted for audit.

It is important that those who do business with participants of the underground economy be made aware of the social inequities and costs arising from the unpaid taxes. Our report recommends that the department or the new agency increase its activities in public awareness of the social inequities and costs arising.

We also noted that there has been a recent decline of the department's efforts in community visits and consultations. This diminishes the role that facilitation and education activities play in combating the underground economy.

Our report also recommends that the department collaborate with others to get more external sources of information to detect tax cheats and to improve its techniques for audit targeting and file selection. It also signals that additional legislative opportunities exist to deter tax cheats.

The committee may wish to seek assurance that the agency will act on Revenue Canada's commitment to implement the recommendations necessary to improve its fight against the underground economy and will regularly advise you of the initiative's results.

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Enforcing tax laws is no easy task. It is not the Canada Customs and Revenue Agency against the rest of us; it is the agency working for all of us. Tax enforcement requires the support of all Canadians. Your committee may wish to send a message to all Canadians that tax cheating is unacceptable. Nobody wants to pay what someone else owes under our tax laws.

Mr. Chairman, that concludes my remarks. My colleague, Barry Elkin, and I would be pleased to answer your questions.

The Chairman: Thank you, Mr. Minto.

We'll now turn to Mr. Lacombe from Revenue Canada for the opening statement on behalf of Revenue Canada.

Mr. Barry Lacombe (Assistant Deputy Minister, Verification, Enforcement, and Compliance Research Branch, Revenue Canada): Thank you very much, Mr. Chairman and members of the committee. It's a pleasure to be here.

I want to thank the committee for giving Revenue Canada the chance to appear here today to discuss our efforts to combat the underground economy. I also want to thank the Auditor General and his staff for their insightful report. My remarks will be brief.

We agree with the Auditor General that the underground economy is a difficult and complex problem and that it is an issue that warrants continuous attention and constant effort from Revenue Canada, from all governments, and indeed from all Canadians.

Governments in Canada are not alone in facing this problem. Recent OECD reports indicate that the size of the underground economy in Canada's economy is somewhere in the middle relative to other major industrialized countries. Tax agencies everywhere are grappling with this problem.

There seems to be some consensus amongst tax administrations that a multifaceted approach is required and that the success of any policy to combat the underground economy can only be measured over the long term in terms of improved self-compliance. In his report, the Auditor General himself has endorsed this kind of balanced approach.

Revenue Canada has always had programs to detect and deter the non-reporting of income. In 1993, in response to a perceived growth in tax evasion, the department announced a new underground economy initiative. This initiative took a balanced approach. On one hand, we strengthened our resources to detect unreported income by allocating more staff to our non-filer and non-registrant programs and to the audit of small business. On the other, we launched initiatives to work cooperatively with other government authorities and key interest groups and began a program of community visits and external communications to encourage voluntary compliance.

Before the latest report of the Auditor General, we had conducted both an internal audit and a program evaluation of the underground economy initiative. The Auditor General's examination of this initiative has reinforced and built on our internal work, and his recommendations for improvement have identified additional opportunities to enhance our efforts in this important area.

The action plans that were developed to respond to the recommendations of our internal reviews have allowed us to get a head start in addressing several of the Auditor General's concerns. Our 1997 program evaluation of the underground economy strategy is particularly useful. I would be happy to share copies of that evaluation or of the internal audit with any members of the committee who might be interested.

I am pleased to note that the Auditor General supports a number of the actions Revenue Canada has taken, including: creating awareness of Canadians' tax obligations among people who are self-employed; using a balanced approach to combat tax evasion in the underground economy; using a multidimensional approach to influence the compliance behaviour of taxpayers; training audit staff in dealing with small business taxpayers with inadequate tax records; signing agreements to exchange information with federal departments and with every provincial government; promoting voluntary compliance and understanding of the tax system through activities such as community visits, outreach programs, and consultations with a large number of industry associations; and pursuing legislative changes.

Let me provide a few examples of how we are tackling the underground economy.

On January 1 of this year we launched a program of contract payment reporting, which we believe will have a major impact on voluntary compliance in the construction and home renovation industries, two areas where our research demonstrates underground activity is high.

We have kept the requirement very simple. All we are asking contractors to do is report payments they make to subcontractors who provide construction services, along with a few details, such as the business address and business number of each subcontractor. This system is already in force for construction contractors in countries such as Britain, Australia, and the United States, where it has proved its worth in promoting compliance.

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Revenue Canada was also instrumental in introducing a new T-4A reporting system to record payments to contractors of all kinds by federal government departments and crown corporations.

As one indicator of the priority we are now giving to the underground economy, more than a third of the auditors in our small and medium-sized enterprise program are focused on UE activity.

We've been systematically expanding our information exchanges with provincial revenue authorities and our use of other data sources that can help identify companies and individuals who aren't paying their fair share of taxes. However, privacy issues are always a fundamental consideration.

As the Auditor General notes, Revenue Canada has obtained access to more than 70 databases over the past five years from federal departments, other governments, and private sector sources.

Every year, the non-filer program deals with some 500,000 Canadians who have not fulfilled their tax obligation to file as required. This is a major element in maintaining the integrity of the tax system.

It should be noted that the rate of voluntary compliance among Canadian taxpayers, at 95%, is one of the highest in the world. Revenue Canada's enforcement activities bring the overall rate of filing up to an estimated 98%. We at Revenue Canada are proud of that performance, even though we know there is still more ground to cover.

There are indications that a significant number of taxpayers decided to declare income that would previously have evaded tax when they saw we had stepped up our auditing of the underground economy activity.

Many of our audits are based on information or leads provided from outside the department, sometimes by competitors, sometimes by taxpayers who don't like seeing someone else beat the system when they pay their fair share of tax. Since our UE initiative began in 1993, the number of these unsolicited leads has increased from 8,000 per year to more than 30,000.

On another front, our voluntary disclosure program, which allows taxpayers to disclose previously undeclared income without being penalized, is resulting in additional tax assessments of some $30 million per year.

Revenue Canada has developed sophisticated risk assessment models to ensure that our enforcement efforts are targeted in an effective and efficient manner. We've also improved our data capture capacity. For example, we can flag for review a taxpayer reporting only a modest income if real estate records show them purchasing a $400,000 home.

We agree with the Auditor General's recommendation that Revenue Canada should emphasize social marketing as a tool for combating underground activity. Revenue Canada is on its way to completing the research necessary to determine how to implement the social marketing activities that would be most effective. Other tools that can be used range from community visits to programs of public information, such as presentations to secondary school students.

We're not yet ready to initiate a national social marketing campaign. Social marketing is a long-term initiative requiring extensive research. In addition, it entails obtaining the support and active involvement of a number of partners, such as other federal government departments, the provinces, and private sector associations. While we have made significant progress in carrying out the necessary research and gathering broad-based support, it is critical to ensure we have the message right before taking it to the next level.

In light of the recent passage of the agency legislation, I would like to assure the committee that Revenue Canada will continue to honour its commitments to implement the recommendations of the Auditor General with respect to the underground economy initiative. The new agency will remain accountable to Parliament for its activities and its performance through the submission of a regular annual report.

Once again, we appreciate the effort the Auditor General has made in pointing out a number of areas for improvement. We agree with his recommendations, as indicated in our responses. We are confident that the action plan we have already implemented, along with our ongoing work and other planned initiatives, will further enhance our efforts to combat the underground economy.

Thank you very much, Mr. Chairman.

The Chairman: Thank you, Mr. Lacombe.

Before we move in to the discussion of the report, I'd like to note that we have a full quorum here this afternoon. The reason I note that is we have a few housekeeping motions, which I would like to deal with.

First is the adoption of the 11th report of the subcommittee on agenda and procedure, which sets out the agenda of the committee over the next few weeks. Today of course we're dealing with Revenue Canada. Then we'll go to chapter 4, “Fisheries and Oceans—Managing Atlantic Shellfish in a Sustainable Manner”; chapter 10, “Indian and Northern Affairs Canada—Funding Arrangements for First Nations: Follow-up”; and chapter 6, “Human Resources Development Canada—Accountability for Shared Social Programs: National Child Benefit and Employability Assistance for People with Disabilities”.

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Then, if we still have time, we'll go on to chapter 3, “Statistics Canada—Managing the Quality of Statistics”; chapter 7, “The Atlantic Groundfish Strategy: Contributions and Grants”; chapter 8, “The Atlantic Groundfish Strategy: Follow-up”; other observations dealing with National Defence and Health Canada; and chapter 1, “Correctional Service Canada—Reintegration of Offenders”.

Do I have a motion to adopt the 11th report? It's moved by Mr. Myers.

(Motion agreed to)

The Chairman: The subcommittee was supposed to report back to the main committee by May 31, 1999, and that's not going to happen, so I would ask that a motion be moved as follows.

It is agreed that, notwithstanding the adoption of the report of the Subcommittee on International Financial Reporting Guidelines and Standards for the Public Sector on Thursday, November 26, 1998, the reporting date for the findings and recommendations be changed from May 31, 1999 to November 30, 1999.

It's moved by Mr. Myers.

(Motion agreed to)

The Chairman: Now we have to provide various expenditures for the maintenance of the committee on an ongoing basis, and I'm asking for approval of a motion that the committee adopt a budget of $8,592 to cover the expenses of witnesses who will appear before the subcommittee on financial reporting guidelines. That's to bring witnesses to the committee.

It's moved by Mr. Myers.

(Motion agreed to)

The Chairman: And lastly, the Canadian Council of Public Accounts Committees conference this year is in Quebec City in the month of August, and we have always sent a delegation there. We're asking for approval that the committee adopt a budget of $9,958.54 to attend the conference of the Canadian Council of Public Accounts Committees in Quebec City in August.

That one is moved by Mr. Myers also.

(Motion agreed to)

The Chairman: Thank you very much. That's the housekeeping done.

I have one further note before we move in. I note that Revenue Canada talks about the UE initiative, which is not to be confused with the UA initiative of the Reform Party. I wanted to clarify that.

Mr. Steve Mahoney (Mississauga West, Lib.): Or the EI.

Voices: Oh, oh!

The Chairman: Mr. Konrad, welcome to the committee. This may be the first time you've been here. You have eight minutes to ask questions.

Mr. Derrek Konrad (Prince Albert, Ref.): Thank you very much, Mr. Chairman. And that does not stand for “underground alternative” either.

Thank you for your presentations. I've read through this, and I have a couple of questions that I hope I can get good answers on.

I'm on page 3 of some briefing notes prepared by the committee people, I believe, here in the library. It says the audit noted a decline in community visits and consultations. In 1995-96 and 1996-97 there were 120 community visits, or 60 per year, and in the following years only 37 community visits were made. I'm wondering why the decline was allowed to happen—whether this was found to be not useful or whether it was just something that fell off the agenda, for whatever reason.

One other thing raised my interest there. In the second paragraph from the bottom, it says there are communities where high rates of non-compliance have been detected. Earlier you talked about profiles of sectors. Is there a profile of a community that is non-compliant? And if there is, is the department making any effort to develop a profile and to investigate other communities that meet that profile, in much the same way as sectors are being investigated?

Mr. Barry Lacombe: Thank you very much, Mr. Konrad.

Let me turn to your first question. We have found the community visits to be quite effective. They serve an outreach and education purpose. We were not happy with the fall-off that occurred last fiscal year either. One of the objectives we have this year is to get those kinds of outreach and education programs back on track.

When we've asked why that happened, the answer has been that the resources were used for other purposes, and that's somewhat alluded to in the Auditor General's report. Some were shifted more into enforcement, i.e. doing audit work. We would have preferred to stay with the balance we had in terms of the community visits. So that is being corrected this year, because we want to maintain that balance.

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As for your question about communities, the reference probably is to the fact that when we have done community visits, we have found varying non-compliance rates, but in some cases they've been up to 30%. That may be that someone has failed to file or someone has failed to register for the GST. There can be a range of issues. I think that's the context within which that was made. We want to make sure we're following up appropriately on the community visits. That's the context.

In terms of our risk-profiling, we profile risk in any number of ways. We do it by industry sector, we do it differently for individuals versus the business sector, and so on. So we have a number of ways of profiling risk.

Mr. Derrek Konrad: Thank you. Further to that, though, it does state that you do have sector profiles. I presume those are objective standards you can check against and decide whether or not somebody from this sector falls into that point. Do you have community profiles?

Mr. Barry Lacombe: No, we do not. We do this on the basis of sector. Generally, if you take a look at sectors, there's some variation, but they tend to operate quite similarly in the parameters you look at or quite similarly regardless of geographically where you're looking at them. But you do have differences in economic mix in particular parts of the country.

Let's take the home renovation business. Clearly the size of the home renovation business might be larger in a major metropolitan area than in a smaller area, but it may be more important in that smaller area than it would be in the large metropolitan area. So we're very much aware of that. And of course our analysis and the analysis done by Stats Canada, as well as all the meetings we've had with the Canadian Home Builders' Association—and we've had a number of them—all highlight the home renovation area as an area of very high underground economic activity. So that's the way in which we would do our jobs.

We do have strategies, two in draft and two completed, for the four sectors we're particularly concerned about in terms of our underground economy initiative. Then we have about another 18 to 20—and we're continuing to develop these—for our small and medium-sized regular audit program. So these look at all of these things.

Let me also say that every business return is analysed for risk, and that is all done based on the factors we think demonstrate a risk of some non-compliance with the tax acts.

Mr. Derrek Konrad: Thank you.

Do I have any time left?

The Chairman: You have one minute.

Mr. Derrek Konrad: Okay, then I'll just point out what occurred to me when I saw the UE initiative had begun. It appeared to be about the same time as the GST was introduced. I'll leave it at that.

Thank you.

The Chairman: Is that it, Mr. Konrad?

Mr. Derrek Konrad: For now. I'll come back.

The Chairman: Thank you.

[Translation]

Mr. Perron, five minutes, please.

Mr. Gilles-A. Perron (Rivière-des-Mille-Îles, BQ): If we were in the private sector, you would be at an equivalent to accounts receivable and if I were the president, I would not be very happy. Your job is important because it consists in putting as much money as possible into the coffers of the State.

On the other hand, when... [Editor's note: Technical difficulties]... percent of people questioned in a poll say they agree to work under the table. Don't you think there's a huge change in direction that has to be undertaken here?

[English]

Mr. Barry Lacombe: Absolutely, Mr. Perron. This has been a concern to us. We have not made as much progress as we would have liked to have made, because we believe there's scope, as the Auditor General has noted and as we've noted in our response, for measures that will help change people's attitudes and people's behaviour. So we are very much exploring social marketing approaches that can be used to affect people's behaviour and the way people view tax evasion and the underground economy.

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There have been some examples where certain messages have worked quite successfully in changing people's behaviour, and there have been some examples where messages have not been so successful. So one has to be careful in the types of messages one puts out or undertakes under a social marketing campaign. But yes, we want to achieve the highest level of voluntary compliance.

Let me also point out that, as I indicated in my opening statements, 98% of individuals who should file a tax return with Revenue Canada end up filing a tax return. From our perspective—and again, this was identified in the Auditor General's chapter—we think there's a significant problem with the self-employed. In that area, we have increased our outreach activity so that people will be aware of their obligations, and we're continuing to analyse the self-employed sector to determine if there are other measures we can take to help get the level of compliance. That's the area where we think there's a significant problem and where we would like to see changes occur.

In terms of income, virtually every income that's earned from an employer is reported to us. Our analysis, when we compare our numbers to Stats Can, is that about $4.4 billion to $5 billion in self-employment income is not reported to us, and that's why we're taking measures to address that. There may be even more. That's what we're trying to do, and the best way for us to do it is to get people to comply voluntarily and change their attitudes.

[Translation]

Mr. Gilles Perron: You have a lot of work to do to change attitudes, my dear friend.

During a debate on Bill C-43, concerning the creation of the agency, we had representatives from the unions, especially the investigators' union, that led us to understand that you had a serious deficit situation because you had let many investigators go. Is that true or false?

[English]

Mr. Barry Lacombe: That would actually be incorrect. If you take a look, we have not let go of any of our auditors or investigation staff. We were one of the fortunate departments, through all government downsizing, where in fact our audit and investigation staff were increasing.

What you might be referring to is that we had a particular problem in southern Ontario, where both the private sector and another government were offering a premium to our auditors. That particular problem was somewhat resolved when the AU contract was agreed to a year ago. I think that's what's been referred to. We have not reduced the number of our auditors or investigators; in fact it's been going in the opposite direction.

Mr. Gilles Perron: I saw the opposite,

[Translation]

a different vision during a Radio-Canada program in Toronto.

[English]

Mr. Barry Lacombe: Oh, that is correct. If you go back and read that article and those newsclips, you will see it's because people were leaving Revenue Canada in southern Ontario to go and work for the provincial government or the private sector. There was an imbalance in wage levels. But a new collective agreement for the auditors was signed a year ago this June coming, and that situation has settled down now in southern Ontario. We're not losing them. In fact now we're staffing up to the levels we should be at.

But we have not reduced the number of auditors and investigators we have in Revenue Canada.

[Translation]

Mr. Gilles Perron: Thank you.

The Chairman: Thank you very much.

[English]

Mr. Myers for eight minutes, please.

Mr. Lynn Myers (Waterloo—Wellington, Lib.): Thank you very much, Mr. Chairman.

Mr. Lacombe, I want to begin by picking up on the Auditor General's point about it being difficult to assess the underground economy initiative, and what I see as somewhat of a discrepancy between the department reporting $2.5 billion over five years and the Auditor General's figure of in fact $500 million in five years.

As I understand it, the audit you indicate with respect to the $2.5 billion includes the results of regular, ongoing enforcement programs and the results of the initiative. Could you comment on this discrepancy and perhaps tell us why it exists and is outlined as it is?

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Mr. Barry Lacombe: Thank you very much.

Basically we have no particular problem with exhibit 2.4. When we did the underground economy initiative, it was an initiative, but it built on things that were already in place. One of those things that was already in place was our non-filer and non-registrant program. So when we're talking about the impact we're having on the underground economy, we put in the full impact of the non-filers and the non-registrants, because they are not reporting income and not registering to report sales. So that is why we've used the $1.6 billion.

In terms of the audits, we would not disagree with the numbers in the Auditor General's report. The only point I would make is that an underground economy audit, particularly for a small business, is a time-consuming audit. Largely you end up having to use indirect methods to verify it, or going through a zillion shoeboxes, trying to find some kind of trail or something. So perhaps we underestimated just how much time it might take us to do those audits, but we have no disagreement.

Our issue really is, when you take a look at non-filers and non-registrants, we put them all in, because they all weren't filing or registering. That's the difference.

In terms of the marginal impact of the extra 200 resources, the program evaluation we undertook did indeed break that out and talk about how much revenue was attributable to those extra 200 who went into non-filers, and on a per-auditor or per-non-filer basis, the revenue they generated was $340,000 per FTE per year.

Mr. Lynn Myers: You have systems in place that will identify the impact of the initiative from here on in. Is that a fair statement or not?

Mr. Barry Lacombe: We're putting those in place. Part of the problem is that we use a lot of measures of performance. We compare income reported to us with that from Stats Canada. We take a look at employment relative to that at Stats Canada. So we use a lot of these indirect methods.

Coming up with a direct method, as I said in my opening statement, should really be by asking, are we seeing an increase in voluntary compliance, and are all the income and/or sales that should be reported to us being reported to us? We're trying to develop those kinds of systems.

In terms of the specific impact of particular measures, again we agree with the Auditor General, and we want to put it in place. For example, the Auditor General notes that we should have in our system the ability to determine, when we make an assessment, how much of it was attributable to income and how much of it was attributable to some other technical change. We agree with that. But right now we've just been so busy on year 2000 and other systems changes that we have to wait in the queue to do that. But we would agree with that.

We agree with virtually all the things the Auditor General has said.

Mr. Lynn Myers: Mr. Chairman, just on that point, I think this committee would be interested in when those systems are up and going and what the timetable is for those. We should have a report back from the department. That would be timely and worth while.

The Chairman: On Y2K, are you saying?

Mr. Lynn Myers: No, on the systems they're planning to directly look at vis-à-vis this initiative and the direct correlation to tax impact.

The Chairman: How long do you think it would take for you to advise the committee, Mr. Lacombe?

Mr. Barry Lacombe: I think we can do that within a couple of weeks. We can also share with the committee the kinds of performance indicators we have in place and are looking at putting in place.

The Chairman: So by the end of May, for example?

Mr. Barry Lacombe: The end of May sounds very good to me.

The Chairman: Okay.

Mr. Barry Lacombe: What year, Mr. Chairman?

Voices: Oh, oh!

The Chairman: 1999.

Mr. Barry Lacombe: Okay.

The Chairman: We don't want to get caught up in Y2K and find out it fails.

Is that okay, Mr. Myers?

Mr. Lynn Myers: Yes, that's great, actually.

Might I carry on just for a couple of minutes?

The Chairman: Please.

Mr. Lynn Myers: I'm very interested in the memorandum of understanding you have with provincial partners. I wonder if you could maybe elaborate a little bit on that. I think the Auditor General highlights that. Maybe you could tell us about some success you've had in that area, because I'm assuming you're doing it and there is some success.

Mr. Barry Lacombe: With each province, we have a memorandum of understanding. Those memoranda of understanding are designed to enable us to share information and work together to address the underground economy, because we share a common concern about it.

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A committee has been set up in each province, composed of Revenue Canada and provincial government members, and in some cases representatives of other provincial agencies, such as liquor boards or things like that. To give you an example, in the case of B.C., we take a look at legitimate liquor sales relative to liquor sales in a restaurant relative to taxes that have been reported. By doing that, we can begin to get a sense of who may not be fully reporting their liquor taxes or appropriate taxes, and who might be using illegal alcohol or smuggled alcohol.

In the case of the Atlantic provinces, we have work under way with the provinces and the private sector dealing with so-called car flips. In the case of Quebec, we've undertaken a number of joint programs with the provincial government.

We've done this right across the country, and these projects have yielded information. An interesting example is comparing PST registrants with GST registrants. Sometimes that provides some very useful information. So there's a whole range of these things.

Mr. Lynn Myers: I like to hear that there are these partnerships. That's important.

It's my understanding that since 1993 there have been 400-odd meetings with various business associations, so that's another form of partnership. But I understand there have been very few follow-up meetings in the last little while. Is that accurate? Then flowing out of that, why wouldn't you be pursuing that aggressively? Or perhaps you are. Maybe you could elaborate.

Mr. Barry Lacombe: We are pursuing that aggressively, but let me tell you why it may seem there has been a drop-off in these meetings at the provincial or local level.

We have had a number of meetings, including the minister, with, for example, the Canadian Home Builders' Association. These have all been at the national level. The reason they've been at the national level is that we've been dealing with two things. First is the subcontractor reporting payment, where we are working closely with the CHBA and other industry associations nationally. The second reason is, we sat down with the CHBA probably in 1994 or 1995 and developed a 30-point action plan of things we could do together. So we are doing those together.

So it may look as though there's a fall-off at the local level in the number of meetings, but a lot has been occurring at the national level.

The same has been true with the car dealers. Earlier I referred to car-flipping, which is a particular non-compliance issue. That's an issue we've been dealing with the Canadian Automobile Association on, rather than with provincial or local associations, although provincial and local associations are involved in feeding into their national association. So some of that fall-off is because of that.

Having said all that, I must meet with the CHBA, I would say, seven or eight times a year at least; with the auto dealers, probably three or four times a year; and with the Canadian Construction Association, seven or eight times a year. All of that gets cascaded down in the department. We think that's not happening evenly across the country. There are some parts of the country where it's working very well for one reason or another, and other parts of the country where it's not working so well. We want to fix that.

We feel that is exceedingly important. We have had excellent working relationships with the Home Builders' Association, the Canadian Construction Association, the auto dealers, and all sorts of industry associations.

Mr. Lynn Myers: The chair has been good enough to let me ask one final quick question, and that is simply, what's the impact of electronic commerce on this whole initiative? That's a growing area and something we have to keep on top of, and I'd like your response.

By the way, Mr. Chairman, because the Auditor General calls for continuous reporting on this initiative, I'm assuming the department is in concurrence with that. So I hope that will be the case and we'll get regular reports.

Having said that, I would be interested in the impact vis-à-vis electronic commerce.

Mr. Barry Lacombe: First of all let me assure you, Mr. Myers, that we will do annual reporting on this. We agree with that.

We're very concerned, from a compliance perspective, about electronic commerce. It raises issues that can be quite profound, e.g. the definition of a permanent establishment. I don't want to get into technical tax matters, but whether you have a permanent establishment or not really can affect the international distribution of tax revenues. Is a server located in your country a permanent establishment or not? It can have profound effects.

• 1615

Secondly, obviously electronic commerce makes it possible to hide books and records. You can do all sorts of transactions that are very difficult to have an audit trail on, and those kinds of things.

We have done a couple of things.

Number one, as you know, Minister Dhaliwal had an advisory committee on electronic commerce. It reported last year, and he then followed up on their recommendations. We have a technical group looking at the whole issue of compliance and administration and what is needed for electronic commerce. Relative to other countries in the world, we're better positioned; we're seen as a leader in being able to deal with electronic commerce.

The second thing we have is great expertise in computer search and evidence recovery. It may not be well known, but Revenue Canada is perhaps, again, the world expert in that. Believe it or not, we are training people from the U.S. Secret Service and from the U.S. military—army, navy, air force, and marines—just so long as our people won't join. We have people from the Australian national police force and everywhere. Again, if you'd like, we can send you some information on that, or there's a document called Compliance: From Vision to Strategy, which lays that out.

To show you how important this is, Janet Reno wrote to the department, thanking us for what we've done for the enforcement in regulatory agencies under her direction in the U.S., and telling us we should not stop doing the international training we're doing for everybody on computer search and evidence recovery.

Mr. Lynn Myers: Mr. Chairman, this is really an important issue, so I'm glad to hear that.

The Chairman: I was going to raise it myself, Mr. Myers, so I'll let you continue in this vein.

Mr. Lynn Myers: It's very important, and in light of some of the comments you've made, the department needs to be congratulated, because in fairness, that is an area of great concern, and I've certainly heard from other quarters as well that we are, in this country, a leader. That bodes well for all of us, and certainly the international community as well.

I'll leave it at that, Mr. Chairman. It underscores the commitment of the department in this very important area to make sure it's done properly.

The Chairman: Thank you, Mr. Myers, for that.

I don't know whether to congratulate you for being a world leader or cry because you leave no stone unturned to collect taxes, but either way, you're doing your job well as far as e-commerce is concerned, so we thank you for the tax fairness and for doing the job.

Mr. Konrad, we're now onto round two, so it's four minutes this time.

Mr. Derrek Konrad: Thank you.

Last time around, we talked a little bit about community visits, raising awareness, and that type of thing. In paragraph 2.60 I note it says 1,000 staff have been assigned to the underground economy initiative. Over about five years, that's 5,000 man years. Less that $500 million has arisen from that.

When I sent survey crews out into the field when I was in private practice, they had to at least double what they would get paid just to pay their way. They didn't put anything extra into it. I don't know what a field auditor would make, but if he were paid $60,000 a year, using the same criteria, $120,000 annually would be the break-even point to send an auditor into the field.

I wonder if that's an acceptable cost benefit ratio. I realize that keeping people on their toes of course is an important issue for the department, but it doesn't look as if it would be as effective as a good voluntary payment schedule.

And I have one other quick comment in that regard. I wonder if certain types of taxes are a cause of tax evasion. I mentioned the GST was concurrent with the underground economy initiative. Could you comment on that as well for me, please?

Mr. Barry Lacombe: Thank you very much, Mr. Konrad.

Let me begin by saying we would certainly agree; voluntary compliance is by far the cheapest way of doing it. If we, through outreach activities and education activities, can get everyone to comply, again, that is the most efficient way to do it.

In terms of our audit program, the visibility and the returns justify having these resources, because we're worried about not just the immediate effect, but as the Auditor General pointed out, the need for people to believe the system is operating fairly. So we believe that is a worthwhile investment.

• 1620

In terms of our audit program, I can tell you we have some audit programs where the returns are very high and we have some where they're less high. I suppose it becomes a judgment of what that balance is, but our job is, yes, to maximize compliance, not just go out and try to maximize revenues given resource constraint. So we try to run a balanced, dynamic audit program.

In terms of whether certain kinds of taxes lend themselves to greater tax evasion than others, for someone who's working for an employer, unless they're moonlighting—and they do—it's very hard to hide income. If you're self-employed, it's easier to hide income. Stats Can's work on the underground economy suggests that small business, by skimming of receipts, hides income. So it's more the nature of the opportunity, as opposed to the nature of the tax.

Quite honestly, the real loss is from the loss of income taxes rather than the loss of sales taxes. If you just do the sums, you end up in that situation. We're concerned about the loss of both, but the larger loss, I would say, is the loss of income taxes. So I'm not sure.

Research has also been done on compliance, which asks what determines someone's behaviour. Again, it's not so much the tax; it's whether they perceive a risk of being caught or what they perceive as the risk of being caught, the penalties associated with it, and the like. So it's a complex issue, not simply related to one type of tax versus another.

It is much more difficult, where there are withholding taxes, to evade taxes, but that's a vehicle by which you pay the tax, as opposed to a tax itself.

The Chairman: Thank you, Mr. Konrad.

Mr. Harb for four minutes, please.

Mr. Mac Harb (Ottawa Centre, Lib.): Thank you very much.

Mr. Lacombe, I know the department is involved with enforcement, but also you're involved in service to your client. I want to congratulate your department on the excellent service you have been providing, at least to my constituency in Ottawa Centre. The response has been phenomenal in responding to complaints and dealing with them in a fair and equitable manner.

My question to you is with reference to your comment about the estimated 98% compliance, which is pretty good—among the highest in the world, as you have stated. How much do we collect in taxes on an annual basis?

Mr. Barry Lacombe: This is just off the top of my head. Personal income tax is, I would say, roughly $120 billion or $125 billion; corporate income tax is probably about $25 billion to $30 billion; and net GST is about $17 billion or $18 billion.

Mr. Mac Harb: So it's close to a maximum of $200 billion.

Mr. Barry Lacombe: Something like that.

Mr. Mac Harb: So my question then to the Auditor General is, with this figure, where do you get the $12 billion figure? We heard from the ADM that 2% of the people don't comply. I am dumb at times, but I just look at it and say 2% of $200 billion is $4 billion in lost revenues. So where did you get the $12 billion?

Mr. Shahid Minto: Thank you, Mr. Harb. Of course the question is, what is the definition of compliance?

Mr. Mac Harb: No, where did you get the figure of $12 billion that you are saying is not reported?

Mr. Shahid Minto: Can I draw the member's attention to paragraph 2.14, where we talk about the size of the underground economy?

Let me explain what we did. We did not, ourselves, go out and start measuring the size; it would have been a phenomenal task. But a lot of studies have been done on the size of the underground economy. We hired some top-notch economists to come and work with us to review the studies and the methodology used in those studies, and to ask what was the difference in those studies. Some were giving huge numbers, such as 15% or 20%. Other studies, such as the one done by Mr. Drummond, for example, who is now associate DM of Finance, talk about 4.5%, and Stats Canada came out with the number of 4.2%.

• 1625

The difference, sir, is simply in their methodology. The way we have defined the underground economy is very narrow. We are talking only about the legal transactions. We're talking about legal transactions that have occurred for which the income has not been reported to Revenue Canada. This is the definition Revenue Canada and Finance also used.

I know studies are currently under way that point to the fact that if you include illegal activities in this number, then the figure could be two or three times as much as we have now.

When Mr. Lacombe talks about 95% or 98% compliance, he's talking about tax returns; he's not talking about taxes. There is a fundamental difference there, sir. You may have a tax return where somebody files saying they have an income of $100,000 who may have an income of $10 million. He has complied with the provision of the act that says file a tax return, so you have compliance on that. But he has not filed the full income, and there is where you get your underground economy.

So I accept quite easily the fact that we have one of the highest filing rates in world. For a population of 30 million, we get 21 million or 22 million tax returns, which is phenomenal. When we tell that to our colleagues across the world, they're amazed. But that is not the same as saying we collect 98% of the taxes that are due to Canada. That is a totally different equation, sir.

Mr. Mac Harb: I see.

Would the ADM care to comment, please?

Mr. Barry Lacombe: We would agree with that analysis. Someone may file, but as Mr. Minto has said, they may not report their full income, and we spend our time trying to make sure they have. That's exactly it. We have no difficulty with Mr. Minto's analysis. He's right. He could work at Revenue Canada.

Mr. Mac Harb: Okay.

The Chairman: You have a career after politics.

Mr. Assad for four minutes, please.

Mr. Mark Assad (Gatineau, Lib.): Thank you.

Gentlemen, this is all very interesting, and I'm glad to see Revenue Canada is taking these initiatives and all the rest.

I would like to give you the fruit of many reflections and comments I've heard over the years. I think it was summed up quite well when the GST was put into force. It was on the CBC morning program, the flagship of the CBC, Morningside, with Peter Gzowski. For a week he received letters and had interviews with people, and here were good, solid Canadians who were saying the tax burden had reached the point where they were going to find ways to save money. They meant that if they had to hire a contractor, a plumber, or anybody, they were going to try to get these people to do the work on a reduced basis; in other words—they didn't say it openly, but we all understood—under the table.

Therefore, when you say self-employed entrepreneurs are not declaring fully, I don't doubt it, but they're under a lot of pressure from people who want some work done, but they just can't afford all the payroll deductions that exist. How many times have we heard about people who earn reasonable salaries, and when the payroll deductions are all added up, they come home with maybe 50% or whatever?

So the problem is that people get to a breaking point at which they will find ways of saving money. That makes your job that much more difficult.

But I've often felt that because of the few cases we've had where big corporations or family trusts managed to evade substantial taxes in this country, it sent a terrible message to the average citizen. How many times have we heard that people with means find ways to evade taxes, so the average citizen doesn't feel it's being immoral if he's trying to save on his tax bill or get somebody from the underground economy to work?

• 1630

It will take some very bold initiatives. I realize the economy is very sophisticated.

With an average Canadian who works for an employer or the government, all the deductions are gone before he sees his own cash. There's no possible way he can shortchange the tax collector.

Therefore I've often wondered—and I've discussed this with others—if it is possible that we could take a bold initiative. This is all speculation; this is thinking out loud. Let us say we decide a law is going to be brought into Parliament stating that the revenue department is going to say to everybody who sent in their tax returns—be they self-employed or whatever, if you want to target some aspect of the economy—“If you feel you have to make corrections to your latest tax return, you will have the time to do it.” It would also be stated in the law that if you make corrections, there will be no repercussions or penalties.

Let's assume you made a mistake in your last tax return or whatever. There would be no penalties, no going back. There would be protection; it would be understood.

Once that has been done and people make a change, or else they say, “No, the tax return I sent in was correct; I have no problem with it”, we'll take it at face value. But from that point on, if it's found to be deficient—and I would have to say deficient with intent to defraud—it should be a statutory law that you go to jail. It's the only deterrent we have left that would really work, gentlemen.

I often wonder, is that too bold an initiative?

Mr. Barry Lacombe: If I understood your question correctly, Mr. Assad, let me give you my take on it.

Right now we expect people to comply. If you come out with that kind of statement, it's not dissimilar to a kind of amnesty. When you come out with those kinds of statements, most amnesties have shown that in the short run you may get a little more revenue, but in the longer run your compliance problems and your revenues drop. The reason is that people believe if you've done it once, you're going to do it again, so they're going to change their behaviour.

So, Mr. Assad, we could say this, and people would do it, but then two or three years later, they'd say, “Well, I'm going to hold off, because I know it's going to be done again.” All the studies I have seen suggest that in the short run you get a little more revenue, but in the long run it doesn't work.

Secondly, this is an issue that has been looked at by the IMF, and the IMF have concluded that a tax amnesty of that type would not be effective when you have a mature tax system such as we have.

Let me also say we do have a voluntary disclosure policy in place now, where people can come at any time and do exactly what you've suggested: try to get things right for the past. No penalties are associated with it. There will be interest on it, but the voluntary disclosure policy is there.

On the last element of your question, as you've said, when one looks at the fairness of the system, one looks at a few things. Tax avoidance has been a big issue for us. We've devoted additional resources to tax avoidance, because when individuals see it, particularly individuals who aren't wealthy enough to get involved in some of these tax shelters or other kinds of things.... If they're not being run legitimately and properly—if they're abusive—then we want to make sure they're identified and addressed, because people do see those as creating these loopholes, so they think some people aren't paying their fair share.

In his opening statement, Mr. Minto talked about foreign income not being reported to us. We've put in place some foreign income verification measures to try to deal with that.

All of those things need to be in place to show fairness in the system. But I personally do not think an amnesty would bring the kind of long-term result you're hoping to achieve.

Mr. Mark Assad: I'd add one thing. You call it “amnesty”. That's probably a better word—you're right—with one change though. Let's say I'm the taxpayer who sends in my returns and I know there's this amnesty, and I say, “No, there's no problem with the last return I made; I stand by it”, but in fact you do an audit and discover it is far from being accurate, so much so that it wouldn't be difficult to prove there was intent to pay less tax.

• 1635

If the law also said a jail sentence follows, that's probably the best deterrent. God knows, in different parts of the world, it's the only deterrent. We saw how effective it was in the United States.

Is that too bold an initiative? The rules are very clear. For the average wage-earner who sees his deductions taken off, if somebody can manage to defraud the system, the consequences should be very stiff.

The Chairman: We'll hear from Mr. Lacombe, and Mr. Minto wants to make a comment as well.

Mr. Barry Lacombe: I still would be worried about that particular approach. I'm not sure it would yield the kinds of results you want, because we would still have exactly the same problem of determining whether in fact someone had reported all their income or not. There are so many possible ways that people can hide income that short of auditing 22 million returns, which could be quite time-consuming, you'd still have to be able to determine whether it was appropriately reported or not.

I think what would happen is this. It's one of those things where the taxpayers who are reporting all their income now would comply and do it, and the people who aren't probably would send in their return just as it is and say they've done it all, because they'd look at the risk and say, “I don't think you're going to be able to identify all the unreported income I have.” So I'm not sure that even the fear of jail would work in that circumstance.

Let me say there is a variant, and maybe this is what Mr. Minto is going to talk about. The Auditor General in his chapter talks about a Massachusetts approach, and we've been in contact with Massachusetts since the chapter.

So Mr. Minto, over to you.

Mr. Shahid Minto: Thank you.

Let me start by saying I have in my hand a report prepared by the staff of the Congress Joint Committee on Taxation, entitled Tax Amnesty. Their first conclusion is:

The staff of the Joint Committee on Taxation estimates that a Federal tax amnesty would result in a net revenue loss to the Federal Government.... This net revenue loss occurs primarily because the Federal tax amnesty is estimated to have the long-run effect of reducing overall taxpayer compliance with Federal tax laws.

They go through a whole lot of reasons for why that would happen.

There are a couple of things to keep in mind. There are some mechanical problems with amnesties. You already have a lot of people who have made voluntary disclosures. Mr. Lacombe was saying they're getting $13 million a year. So what do you do with people who have already made voluntary disclosures? What do you do with people sitting in accounts receivable who have been charged interest and penalties on those amounts?

As Mr. Lacombe said earlier, 95% of the tax collected in this country is without any effort. You really don't want to jeopardize that part. People will say, “Look, these guys never paid taxes, never did anything, and they just come forward now and everything is fine. Why have I been paying for so long? Why did I pay penalties and interest?”

So while you want to get additional revenue, no question, and you want to get these people into the system, you don't want to jeopardize 95%. So it has to be thought through quite a lot.

Second, on this Massachusetts stuff, let me refer you to paragraph 2.73. In Massachusetts, if the tax department looks at the tax return and says, “Hey, somebody's taken an aggressive position; this doesn't look right”, they write to the person. They say, “This is a self-assessment program. You have been given an opportunity to correct your tax return”. If that person does not correct their tax return or does not correct it properly, then there's a heavy penalty and no leniency is shown. So you might want to consider something like that.

The last point is that we have a very well-established voluntary disclosure program. If you were to declare an amnesty, sir, what would you do with that program? Would you then abandon that program completely? Because it works. People do take advantage of it, especially when it is combined with the fairness package.

You may want to consider advertising that program more. You may want to consider putting a human face on that program and talking about the kinds of things that can be discussed under the program, and coming out and giving it more publicity. But there is a program.

I'm not taking a position. This is a tax policy issue. I'm just laying some facts on the table. A whole lot of things have to be considered before you arrive at the amnesty conclusion.

The Chairman: Mr. Finlay for four minutes, please.

• 1640

Mr. John Finlay (Oxford, Lib.): Mr. Chairman, thank you.

I have a comment first that arises from something Mac said. For some years I've been talking to the revenue minister about getting somebody to write letters for the revenue department that don't suggest in the first paragraph that you're trying to cheat the government out of their taxes, but instead suggest first that you're expected to pay them, and they're very happy you do that.

Having said that on a number of occasions, I'm happy to report that in the latest assessment of my spouse's return, the first sentence was something like, “We thank you for your income tax return, which we received recently, and we've made a few corrections.” That's the appropriate way to go, instead of the way of the letter I received some years ago, which was quite different.

Mr. Mac Harb: When you were young and wild.

Mr. John Finlay: Yes, after I paid $17,000 that I owed, and then they said in the first paragraph, “If you don't pay the $3,000 more, we're going to put a lien on your salary.”

Anyway, that's water under the bridge.

The Chairman: That's a good point, Mr. Finlay, because I think they now recognize that people are clients, not taxpayers who have to be squeezed.

Mr. John Finlay: Exactly.

The Chairman: So your point is well taken.

Mr. John Finlay: In your report, Mr. Lacombe, am I understanding what social marketing is or not? It's a buzzword I haven't come across before. You might just enlighten me on that. It's on pages 5 and 6 of your report.

The other thing is, I was struck when you said that in light of the recent passage of the agency legislation, you want to assure us that Revenue Canada will continue to honour its commitments to implement the recommendations of the Auditor General. Does that mean the Auditor General will, when he wishes, or when the office wishes, be auditing the new agency or not? It doesn't say that. It says the new agency will remain accountable for its activities and its performance through the submission of a regular annual report, which is fine, but is that report going to have the scrutiny of the Auditor General?

Mr. Shahid Minto: Maybe I can start with the good news, sir. The good news is, absolutely, we are the auditors of the agency. Nothing has changed as far as that part of the business is concerned. What we're saying is that when we did this audit, the entity was called Revenue Canada, and in transition, it has now become the agency. Hopefully the commitments made by Revenue Canada will continue under the name of the agency that was issued.

The Chairman: I'm sure they will.

Right, Mr. Lacombe?

Mr. Shahid Minto: We were given assurances by Mr. Lacombe in his opening statement today that they will.

Mr. Barry Lacombe: Absolutely.

I just would like to say that some people's good news might be other people's bad news.

Voices: Oh, oh!

The Chairman: Carry on, Mr. Finlay.

Mr. John Finlay: My other question—and I got nods, so maybe I'm right—was on the national social marketing campaign.

Mr. Barry Lacombe: Basically social marketing is trying to change people's behaviour. You can go at it in a number of ways. To give you an idea of a larger campaign that's been done, there was the Participaction campaign, which was designed to get people to do more healthy things and exercise.

You can do things—and some administrations have done them—to try to change the behaviour of those taxpayers who may not want to comply. You can frame those messages in a number of ways.

There are also smaller things. For example, with the Canadian Home Builders' Association, we've done a publication called Get it in Writing, which the association has found very effective. It points out all the pitfalls of using someone who may be operating under the table. It's a nice little pamphlet that's been put out by the Home Builders' Association; they market it across the country. We've been at home shows doing things jointly with them on it.

So there's a range of media and instruments you can use to do this. That's what we're looking at now, that's what our research is about, that's what we want to see finished so that when we move forward with this, we've done everything we can to ensure it will be as successful as possible.

We also know that once you go into this, you don't go into it for a year. You're into it for a longer haul. But that's fine, because what we really want to do is reinforce and thank those people who've complied voluntarily and try to change the behaviours of those who have not complied.

Mr. John Finlay: Thank you, Mr. Chair.

The Chairman: Thank you, Mr. Finlay.

I refer you to an article, “The Underground Economy: Moving the Myth Closer to Reality”, authored in part by Mr. Don Drummond, who I understand is known to many people around the table.

• 1645

He states in his introduction:

Everybody knows that the underground economy has grown in recent years because everybody has an anecdote about it.

Then he goes on to say, under “Why Has the Underground Economy Grown?”:

Three factors appear to have led to the growth of the underground economy: higher tax rates, the recession and a change in public attitudes towards taxation.

The Auditor General is also referring to these same types of things that appear to be motivators for people to not pay what Revenue Canada would like them to pay or what the finance departments say they should pay as far as the Income Tax Act is concerned.

There are two sides to this: the carrot and the stick. There's the voluntary compliance and there's the less voluntary compliance, when you catch up with them.

First, on the voluntary compliance, I notice in paragraph 2.37 of the Auditor General's report it says:

Revenue Canada should strengthen its Underground Economy Initiative activities to promote voluntary compliance by businesses.

Then I find that much of your effort has been on the non-voluntary compliance. These 1,200 auditors have been pushing and shoving and digging and poking and trying to find nickels and dimes and money everywhere, and they've come up with a few hundred million dollars. But let's talk about the voluntary compliance. How much emphasis do you put on that?

Mr. Barry Lacombe: We put a lot of emphasis on that, and let me give you some examples. All those 1,000 auditors aren't out just doing auditing. They've been involved in the community visits. They've been involved in information sessions for new businesses. Jointly with our colleagues in assessment and collections, we've been providing sessions for new businesses.

One of the things we've done is clarified the guide, which is very important to the construction industry. We have gone out and provided presentations on the difference between an employee and an independent contractor. We have worked on newsletters and information sessions with a number of industry associations.

So we put a great deal of value on it.

The Chairman: Mr. Assad was talking about amnesties. Has one ever been done before?

Mr. Barry Lacombe: Not that I'm aware of in Canada, no. In other countries, yes.

The Chairman: Therefore it's been proven that they're not advantageous at all, but they have a negative long-term effect?

Mr. Barry Lacombe: The general result is, as Mr. Minto pointed out, as reached by the Joint Committee on Taxation of the U.S. Congress.

The Chairman: And you would endorse that?

Mr. Barry Lacombe: That's what all the research shows that I've looked at.

The Chairman: Okay.

I understand the basic policy is that Revenue Canada passes on to the provinces provincial taxes that are assessed and absorbs all bad debts but keeps interest and penalties collected. When you're at the fringe, if I may use that terminology, of the people who have a tenuous relationship to tax payments, your bad debts must be much higher in that particular segment. When you are collecting this $500 million of extra taxes, a lot of that is passing on to provinces. Is it still a net benefit for Revenue Canada?

Mr. Barry Lacombe: I can't give you the answer to that question right now, Mr. Williams, because I don't know the facts. I do know that in terms of our overall accounts receivable, we have reduced accounts receivable, and we established a notional target that we were trying to achieve in terms of accounts receivable. We have moved down from where we were a few years ago to about a level of 4% or 4.2% total accounts receivable.

So accounts receivable in the aggregate have moved down and now are levelling off. But I can't tell you about generally the UE numbers. I'm not sure if our systems would allow us to do that right now, simply because a lot of offsets occur with some of these taxpayers, of one type or another.

The Chairman: You've done sector-by-sector analysis, and some provinces have higher tax rates and some have lower. Have you done a sector-by-sector analysis on a geographic basis to find out if low taxes equal more compliance—well, more voluntary compliance?

Mr. Barry Lacombe: What I'd rather tell you is that when you look at the OECD studies across countries that have differences in tax rates and some differences in taxes, that in itself does not explain the differences in the estimated size of the underground economy. As I say, there's enough—

The Chairman: I did want to talk about voluntary compliance. There's a difference between people who complied on an involuntary basis and the underground economy.

• 1650

Mr. Barry Lacombe: Right, I understand that. These are a common measure of the underground economy and so on.

As I indicated earlier, a lot of factors influence whether someone is going to comply or not. The relative weight of them I have not seen. The best piece I've seen is a piece of work on compliance that came out of, I believe, the University of Virginia, which tried to lay out all the factors. But it's an area where no one has any clear reading on the relative weight of the various factors that influence compliance.

It's easy to set up the model and say this influences, the risk of being caught influences, and so on, but no one I've seen has come up with any good quantitative estimates of what really drives it and the relative importance of each of those purported phenomena.

The Chairman: In addition to sectoral analysis, we have a very large number of people in this country now who have been here a relatively short period of time, who've come from a multitude of different backgrounds from all around the world. Some of those countries' tax collection policies and procedures are certainly not as good as ours, shall we say. Have you done anything to find out about recent immigrants to Canada? Do they comply at the same rate as Canadians who have been here a long time?

Mr. Barry Lacombe: Because of a general concern about offshore income or the way in which people might comply with Canada's tax system, we put in place the foreign income verification measures. We were concerned very much about tax havens and the identification of foreign-source income.

In terms of new immigrants to the country, again, we've increased our outreach activities so that when people come, they will understand how Canada's tax system works, what we mean by voluntary compliance, and why the tax system is important. We have strengthened those activities very much over the last few years.

In fact one of the recommendations from the Auditor General, in a report done last summer on foreign income verification, was that we continue to strengthen those activities. That's what we're doing.

The Chairman: Mr. Minto.

Mr. Shahid Minto: Thank you, Mr. Chairman.

Staying on the same topic, when we looked at the foreign asset reporting requirements last year, my colleague, Barry Elkin, and I met a lot of people in various places in Asia. I'll just give a couple of examples of things.

For example, one of the questions we asked our immigration officials in those embassies is, when somebody applies for immigration, especially a foreign immigrant visa, on the basis of investment in Canada, do we talk to them about our tax laws? Everybody said, “No. We talk about our health system and our environment and our clean air, but really we don't want to deter people. Our objective is to get more people in.”

One of the suggestions we made at that time is that maybe every embassy should have some information there on our tax laws, because there is a bill attached to the clean air and the education and the health side. Really what Canada needs are rich immigrants who pay their fair share of taxes, and not just rich immigrants. So that was one suggestion.

Another thing we noted, for example, is there is something called an immigrant trust. I'll just repeat this; we talked to you about it before. What happens with an immigrant trust is, before you immigrate to Canada, you can start to set up an offshore trust and put all your foreign assets into it for the next five years, and you do not have to declare the income from that to Revenue Canada.

The Chairman: But you have to declare the existence of the trust?

Mr. Shahid Minto: At the time we did the audit, you did not.

The Chairman: Is that still the same way?

Mr. Shahid Minto: I would have to go back to my colleagues at Revenue to find out. We haven't followed up since we did the report.

So when someone came to Canada, this worked fine when it took them five years to get their passport and citizenship, because they were here for five years, it took another year to get their passport and citizenship, time was up, and they declared the stuff. Now it takes only three years. So at the end of three years, they could have been here, never appeared on Revenue Canada's screen, and then just leave.

So we asked, if a person comes in with money as an immigrant who's supposed to invest in this country, is he supposed to register with Revenue Canada? Because surely the purpose is to come and have some income here. Even that was not required. It's on a voluntary basis. You file at the end of the year for whatever you've done.

So there are some things departments can work better at between themselves. Privacy laws are very important, but if the purpose of the exercise is to come to Canada to invest, just as you have to come and get a social insurance number, why can you not get a business number? Why should it not be required? Some things such as that can be thought through.

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The Chairman: So if I got your point there, if an investor wants to come in through an investor program, he can apply and in the meantime put his foreign assets in a trust, on which he is therefore not required to pay Canadian income tax. He can leave them there for five years, which is legitimate under our system. He can have a Canadian passport in three years, thank you very much, goodbye to Canada. He goes back to where he came from, unties his trust, takes his assets back, and he has a Canadian passport and he didn't pay a nickel in Canada.

Mr. Shahid Minto: Except on the income he generated while in Canada—Canadian income.

The Chairman: That's right.

Mr. Shahid Minto: On domestic income, he would have paid, if he filed, but on the foreign income, no.

The Chairman: The fundamental rule of course is that in Canada we're taxed on world income.

Mr. Shahid Minto: On a residency basis, yes.

The Chairman: And we've granted this one exemption or deferral. I guess it's an actual exemption if they don't pay tax for five years.

Mr. Shahid Minto: Yes.

The Chairman: Now we're finding that has actually become a potential loophole.

What do you say, Mr. Lacombe?

Mr. Barry Lacombe: Well, in terms of identifying these trusts, the new—

The Chairman: Don't you think the people who are applying and being granted a visa under the investor program should be reported to Revenue Canada before they get their feet on the ground?

Mr. Barry Lacombe: We have a relationship with Citizenship and Immigration. We are talking and exchanging information more than was the case. Measures have been taken on that front.

The Chairman: Will you look into this three-year, five-year rule?

Mr. Barry Lacombe: Mr. Chairman, I can undertake to note the committee's interest and write to my colleague over in the Department of Finance, because that truly is a tax policy matter.

The Chairman: It's either a tax policy matter or a passport matter, because the two are incongruent.

Mr. Barry Lacombe: That's correct, but I think the real issue here is the tax policy one. I will write and send you a copy of the letter and suggest that they get back to you, Mr. Chairman, with their views on it.

The Chairman: What kinds of penalties do you apply? Do you apply normal penalties to people in the foreign investor program if they fail to file or if you find out they have not reported foreign income?

Mr. Barry Lacombe: There are failure-to-file penalties and then there are penalties related to the income they have not reported. We would apply both of those.

The Chairman: And they're exactly the same as for Canadian residents?

Mr. Barry Lacombe: The only difference, I believe, is that in the foreign income verification, there is a larger penalty for not reporting accurately. It's a percentage of the value of the assets you have not reported, and it's a stiffer penalty. I think it's 5% of the value of the unreported assets.

The Chairman: Mr. Minto.

Mr. Shahid Minto: Mr. Lacombe is right in the substance of it. There was some confusion when these rules were announced as to whether the department would actually be enforcing the rules for the first two years or not. I'm not sure if those rules are being enforced.

The Chairman: You're not sure. Do you think that policy was waived for a couple of years?

Mr. Shahid Minto: There was a ministerial announcement, which led a lot of people to presume the policy really wasn't going to be applied that strictly for the first two years.

The Chairman: What do you say, Mr. Lacombe?

Mr. Barry Lacombe: This is not unusual for us. If there's obviously a blatant case, we will do this, but given the need to help people and make sure they are reporting properly, we are going to rely a lot on outreach and a lot on helping people and working with tax professionals so that people will in fact be complying with the measures.

The Chairman: Would you say you quite often waive penalties on a policy basis?

Mr. Barry Lacombe: I wouldn't say we waive them quite often on a policy basis, but when we're putting something new in place, we will work with people so that they will be able to comply with it so that they're not caught short, because this is a new reporting requirement. That's what we will be doing here, as we would when we put in new measures in a number of areas.

The Chairman: It's a bit of a concern to me that we put in penalties and then waive them on an introductory sale, shall we say. We wouldn't want to do that with interest and penalties. Perhaps you could look into that and let us know what the situation is regarding what Mr. Minto was just talking about.

Mr. Barry Lacombe: Sure, yes.

The Chairman: Could you cover that off, Mr. Minto, so that we know exactly what you were talking about?

• 1700

Mr. Shahid Minto: With the introduction of the foreign asset reporting rules at that time, there was a press conference, if I remember correctly, and a statement was made by the minister, as a matter of fact. Clearly the reporting of that in the press and other places was that for the first two years, these strict penalties Mr. Lacombe was talking about would not be strictly enforced.

The Chairman: But I would have thought that once they were in legislation, they didn't have the right to waive that.

Mr. Shahid Minto: That was the unusual aspect about that announcement, sir.

The Chairman: Mr. Lacombe.

Mr. Barry Lacombe: Generally, whenever we put in a new reporting requirement, we want people to report and we want to go out and work with them and make sure they're reporting. Under those circumstances, people may not report for some very good reason, such as the difficulty sometimes of getting the information.

So what we want to do is be out there talking to professionals and to people who would be doing this reporting to provide them assistance so that they will in fact report. That's where our focus is, as it would be with any new thing in the initial years of putting it in place.

The Chairman: Mr. Harb.

Mr. Mac Harb: My understanding is it's not the asset, but if there's an income coming out of those assets. That's what you are suggesting.

Mr. Shahid Minto: That's right.

Mr. Mac Harb: Those are two different things. I think Mr. Williams is talking about assets.

The Chairman: I wasn't sure if it was assets. I was concerned about what Mr. Minto was saying, which is that it appears we passed legislation through the House, or I presume we passed it through the House—all these penalties and so on are in the Income Tax Act—and then Revenue Canada is saying, “Well, we're not going to apply this penalty, but we'll certainly apply interest and penalties to somebody else.” I was wondering on what basis.

Mr. Minto.

Mr. Shahid Minto: Through you, Mr. Chairman, to Mr. Harb, we've always had the requirement to report income. That is not new. The requirement to report foreign income has always been there. What was new in this was the requirement to report foreign assets. The penalty Mr. Lacombe was talking about was for under-reporting or non-reporting of foreign assets.

We also have a fairness package in place for a situation such as the one Mr. Lacombe was talking about. If, for hardship reasons, somebody cannot come up with the information, the fairness package allows the department to waive the interest and penalties—not the tax, but the interest and penalties.

The Chairman: Do you think, Mr. Minto, we shouldn't be waiving this penalty at all?

Mr. Shahid Minto: I was putting the information before the House. The issue really is that an act is in place, and it is unusual for the tax administration to say they will not enforce provisions of the act, because that is really a finance matter, a tax policy matter. That's the statement I was making.

The Chairman: Okay.

Mr. Finlay, you had a question.

Mr. John Finlay: Mr. Harb mentioned that in his riding, his constituents are getting very good service and so on. Just recently in my riding, a number of accountants have said to me there seems to be a change in attitude on the part of Revenue Canada, which they can't explain. They said that some years ago, they were called in to meetings and were told, “This is a voluntary compliance system. We need your help in doing this. If you have clients who have some difficulty, by all means call, and we will work with you to sort things out.”

As it happens, my accountant told me this story. However, last year he ran into several cases where he felt the revenue department in London, Ontario were being very sticky and not helpful at all. He had sent in everything. He was even told on two occasions that a fax he had sent and had proof of sending never got to the auditor. He was told, “Well, if you don't like what we're telling you, we'll see you in court”, which is not the aim of the tax collection system.

I have been unable to change this. I presume it's somebody who's been at the job a long time perhaps and knows there are people out there who do want to beat the system.

I'm interested that Mac's experience is quite different from the recent experience of some of my constituents and the professionals who are trying help them with this system.

• 1705

I don't know if anything can be done about it, but I raise it, Mr. Chairman, because it's a concern.

The Chairman: Let's see what Mr. Lacombe has to say.

Mr. Barry Lacombe: Obviously, Mr. Finlay, I'm not familiar with the specific circumstances, but we will follow up with the office. We expect our offices to operate in a way that does focus on service and resolves the problem. So we will follow up on that and see what can and needs to be done.

Mr. John Finlay: So I should speak to you privately.

Mr. Barry Lacombe: Yes, absolutely.

Our approach is always one of trying to make sure people understand and can comply. As we both said, the voluntary disclosure policy is there, and that's what we want to do. We want to achieve compliance.

The Chairman: Mr. Myers.

Mr. Lynn Myers: Mr. Chairman, I want to come at it a little bit differently from my colleague, Mr. Finlay.

I support what you're saying, Mr. Lacombe, in terms of different offices and this kind of thing. I want to report that Frederick Street in Kitchener has been very cooperative. While we do not always get the answer we want to get, they have been very helpful in the cases we've had on a variety of topics.

I don't know what it is, but I guess when you hear negative, you also have to hear positive. So I do want to report that, Mr. Chairman, because it really has been quite enlightening to see the kind of client-friendly service we've been able to get out of that establishment. That bodes well.

I don't know if it's a function of maybe London versus Kitchener or whatever. I have no idea as to how this happens. But I can report that we've had very good service there.

The Chairman: Thanks would be in order there, Mr. Lacombe.

Voices: Oh, oh!

Mr. Barry Lacombe: That's what I was about to do, Mr. Chairman.

I really would like to thank you for that.

I'll tell you one other thing we do. We do an audit quality initiative, where we actually go in and talk to tax professionals in every geographic area, as well as clients we've audited, to get their views. I agree with you, Mr. Myers. It's not the happiness quotient; it's more the professionalism and attitudinal thing. It's not total happiness, obviously.

We do that on a regular basis, and we try to identify those offices where things are working well and those offices where things might need improvement. So we will definitely follow up on ones that need improvement.

We very much welcome hearing from you, Mr. Myers, and you, Mr. Harb, about the successes in the two offices you've referred to.

The Chairman: Mr. Finlay.

Mr. John Finlay: Mr. Chairman, I think Mr. Lacombe heard everything I had to say. This has occurred in the last two years. Up until that time, I would have said exactly what Mr. Harb has said and what Mr. Myers has said. I've dealt with a number of cases and found them to be done professionally and well. It didn't always work out to the taxpayer's satisfaction necessarily, but it was dealt with in a professional manner, as my accountant said they were told it would be. This is just in the last year or two that this has occurred.

Mr. Barry Lacombe: Yes, I understand. Had it occurred two years ago and was not occurring now, I would have said.... But I understand very much, Mr. Finlay, and we will follow up. Thank you.

The Chairman: Mr. Konrad.

Mr. Derrek Konrad: I have a really low-tech question, just as low-tech as an income tax form.

You talked about getting information out to different industry groups and trying to encourage consumers to get knowledgeable about their requirements under the tax thing and what's legal and illegal with respect to home renovations and construction and that type of thing. Have you considered putting something in a tax return form itself? We know that everybody who submits a tax form gets a tax form envelope, and it's full of whatever the department puts in it.

In looking at the Auditor General's report, I see a little story in a couple of exhibits, 2.1 and 2.2—a “What's wrong with this picture?” type of device. Have you considered something like that?

• 1710

It's one thing to go to home shows and have a booth that nobody stops at unless you're giving something away, and if you give them information, they take it to the nearest round blue barrel and put it in. But if it comes in their tax form, they might even think of reading it. Has that been considered? It's cheap and effective.

Mr. Barry Lacombe: Every year we're considering the tax form, and I suppose one view would be that there's already enough in there for people to read. But your point is a good one. We have to find ways of better communicating and getting this information out.

Mr. Derrek Konrad: It could just be in the areas where you're putting additional audits on—that type of thing. You could just say, “For your information, Revenue Canada is auditing home renovation companies or individuals providing those services, as a result of...” and then state some of the things. It doesn't have to be anything fancy or involve lots of law, but just those types of basic facts on a piece of paper they'll see right off the top, so that they're a little bit aware.

Mr. Barry Lacombe: I can tell you, Mr. Konrad, that on this year's and last year's returns, there was a block that highlighted the need for people to report foreign income.

Let us take a look at that and see what might be done in terms of your suggestion. I'm still not sure whether it would be the tax form or something else, but let us take a look at that.

Mr. Derrek Konrad: Okay, thank you.

The Chairman: In paragraph 2.40 of the Auditor General's report, down towards the bottom of the paragraph, they're talking about matching your database with other databases that are available. It says:

When matched against the contractors' filed returns, a sample of payments indicated that 40 percent had not reported these payments. At the time of our audit, the Department was finalizing its enforcement response.

Obviously in some sectors there's still a major compliance issue. When you do find sectors—say, automotive or construction—with this type of statistic coming out at you, where 40% of these database matches show unreported income, do you automatically put a program in place to try to identify that?

Mr. Barry Lacombe: That's exactly right.

At any point in time, related to the underground economy, we might be running 150 to 200 projects. You can call them pilot projects if you want. The reason we're running them is to test whether there's a compliance problem or not and how large it might be. When we identify it and we find it is a problem, we'll address it.

The second thing we've done in the case of the construction industry of course is the subcontractor reporting information. That is now in place. A similar project gave rise to the T-4A for federal contracts. We thought there was some room for improvement there in terms of compliance, so we put in a reporting mechanism so that we can now do that on a regular basis.

The Chairman: These forms are getting horribly complex. The T-4A and so on are becoming extremely complex documents. They have all kinds of boxes on there. The T-4 has totally changed this year. While you as professionals may find it's okay, I'm quite sure a lot small businesses that get on with the business of trying to earn money are going to find compliance even more and more complex. Do you always try to address that particular issue? Because remember, just because a small businessman is making money, that doesn't mean he's a tax professional.

Mr. Barry Lacombe: Exactly, and we would totally agree with that view, Mr. Williams. We have a national small business advisory committee and one in each region. They meet regularly, and that's exactly the kind of issue we discuss with them. How we can make things more simple, how we can reduce their cost of compliance, and how we can provide better service are very important objectives of ours.

To give you an example, in the audit area, it used to be that at one point they might have an income tax auditor arrive, and then perhaps a GST auditor or a payroll auditor or something shortly thereafter. To overcome that problem, if a file were chosen, say, for an income tax audit, we'd put in place a compliance review so that they wouldn't have the recurring visits. So we're always trying to find ways.

• 1715

Our whole basis of risk assessment is to make sure that when we choose a file for audit, we have a good basis for choosing it, because we want to minimize the disruption to business. Quite honestly, the more sophisticated we become in risk assessment—and we're quite sophisticated—the better that is, because it means we're going to be less burdensome on small businesses, and that's exactly where we want to be.

The Chairman: Would you also take a look at the certification by the taxpayer, especially on the new computer-generated T-2 returns? If you take a look at a computer-generated T-2 return, there is not a single word on it. It is strictly numbers—numbers pertaining to the paragraphs and the clauses and the lines, but the lines are not printed. The income and deductions and all the numbers pertaining to it are right there too, and you're asking the taxpayer to certify that this is correct.

This was brought to my attention by one of the tax professionals who lives in my constituency. He said, “How would you ever expect anybody to certify this as correct when there isn't a single word on the return, but strictly numbers?” Therefore it's a pro forma exercise on behalf of the taxpayer, but I'm quite sure that if there's a problem, that certification means an awful lot in law.

You have to take into consideration that even though it's gobbledegook to the taxpayer, you're still requesting that he certify that. You have to address that, because he is asking, “What's Revenue Canada doing?”

You're a big, large, monolithic institution somewhere else that they can't understand or reach to talk to somebody intelligible. Half the time, when they make one call, they can never find the same person again. You're asking for this type of compliance by them, and they're not happy about it.

I'm not saying you perceive it from that perspective, but they're saying, “Why should I sign this? I have no idea what I'm signing.”

Mr. Barry Lacombe: We'll definitely look into that and get back to you. I'll raise that with my colleague, Mr. Miller, and we will definitely get back to you on that one.

The Chairman: Okay.

The other question I have is this. Three or four years back, the Minister of Finance changed the GST on used cars so that there was no longer the notional tax credit. That was eliminated. Now every time a car is turned over on a car lot, the full 7% GST is applicable, and presumably 15% in Atlantic Canada for the harmonized GST.

You talk about the automotive trade business as one of the big underground problems. I'm quite sure that particular policy has complicated the issue by driving it more underground. In my own constituency, between St. Albert and Edmonton, there's a service road, and on a Sunday afternoon, that service road turns itself into a car lot. People come along with a “For Sale” sign on their car, they stand by their car, and the car is traded. GST is not applicable. It's legitimate that it's not applicable.

You are raising the issue of the underground economy, and I'll put “underground” in quotations there, because it's not illegal. We're asking the automotive industry to compete against that.

You mention and the Auditor General points out that legitimate businesses are at a disadvantage where the underground economy is alive and well. Have you done any studies to find out what's happened in the automotive industry since the GST in the full amount has been applicable on all car transactions?

Mr. Barry Lacombe: I'm not sure it was the removal of the notional input tax credit that created the problem. Basically there is a problem of car-flipping, and we've been working with the industry on resolving that particular issue. But it's not only related to cars. It's related to some other heavy equipment and the like.

We know the problem is a significant one. The car dealers tell us that. We have ongoing meetings with them and are working with them to try to develop a strategy to deal with this issue. I can't tell you exactly what that is right now, because we're still working on it.

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The Chairman: Well, I certainly hope it is to go back to the notional tax credit, because that 7% every time a legitimate car dealer trades a car puts him at an automatic disadvantage. On $20,000, that's $1,400 that the government collects every time that car gets traded. It could get traded maybe three times in a month, and there's almost $5,000 of tax, whereas if it's traded outside the system, there's no tax.

Mr. Barry Lacombe: There are two issues here. There is whether the people who are trading these cars are registered. If they're there every Sunday, they're probably doing more than $30,000 of business, and therefore we should be trying to make sure they're registered.

The second dimension is that some of these schemes are structured in such a way that the car moves through a number of hands in a very short period of time, and somewhere along the chain it may be tax-exempt for one reason or another. So that's the loop.

We're familiar with both of those schemes. In fact we've laid some charges against a number of such schemes in Ontario, and we're moving that way in other provinces.

The Chairman: The issue is that simplification of the tax, perhaps even significant reduction in the tax, will equal the same amount of tax collected and the same benefits to the taxpayer, because there's less effort in having to collect it and apply charges, audits, and so on.

Mr. Assad was talking about the maximum benefit and the Laffer curve. You're fully aware of that. Perhaps if you were to back off a little bit, there would be net revenue in the pockets of Revenue Canada. Without having audit costs, compliance costs, court costs, and so on, you actually could be dollars ahead.

Mr. Barry Lacombe: What I would rather do on this, Mr. Williams, if you would agree, is send to the committee, not something we've written, but something the auto dealers have written on the schemes and the way in which they run. When you see that, you will see it may not be related to the existence or non-existence of the notional input tax credit.

I would feel better just sending you what the auto dealers have said. They've said this publicly. They've outlined how they think the schemes operate. Maybe I can send you that, and then if you have any questions, we can meet to talk about that.

The schemes as we see them would not necessarily be helped or hindered or stopped by reintroducing the notional input tax credit. In fact they did exist before the notional input tax credit was removed.

The Chairman: Okay.

Are there other questions?

Mr. Minto, do you have a closing statement?

Mr. Shahid Minto: Yes, a very short one, Mr. Chairman, with just a couple of points.

The purpose of the system is to collect the correct amount of tax, not the maximum amount of taxes. Earlier we were hearing things about maximizing revenue, but it is the correct amount. Revenue Canada and the Office of the Auditor General have exactly the same objectives. We support their activities in this area.

There are two parties to an enforcement action. Our point is that there are some strategic options. You can go for maximum immediate revenue and do a lot of audits, or you can go for long-term compliance and do some social marketing, or you can do a mixture of the two. We found they were putting all their resources on one side, and our point has been that there is another party that deals with these people too, so if you make them aware of the consequences, we may have better results and better compliance.

The plan is very balanced. In the implementation there is a balance. We were having a problem identifying the results from the plan, from their actions. We are pleased to note that Revenue Canada is putting in system changes that will enable the department to follow through on reassessments to determine how much was collected, and we are pleased to note they are putting in good performance indicators on which they will report back to this committee.

I just want to clarify two small issues for Mr. Assad. Unfortunately he's not here. He raised the issue of wilful neglect and intent to deceive. That is a criminal offence already. You don't have to pass a new law to put somebody in jail for that reason. That's on the books, and Revenue Canada can charge people with that.

I want to finally remind the committee of something. We had a discussion on the amnesty. The voluntary disclosure program is in effect a fine amnesty program. It is generous. It is used by a lot of people. Perhaps it's not as well publicized as it could be by Revenue Canada, and they may want to look at that side.

The Chairman: You said the amnesty program is not well publicized?

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Mr. Shahid Minto: No, the voluntary disclosure program. It is an amnesty program in fact by another name. It has been institutionalized and it has been used. Perhaps it's time to put a human face on it and talk a bit more about it in the media and the press. That may be the answer.

The Chairman: Thank you.

Mr. Finlay, do you have a question?

Mr. John Finlay: Yes, on that point, Mr. Chairman.

Your report said this amnesty program, or voluntary disclosure, is without penalty, but the interest would apply, you said.

Mr. Shahid Minto: Yes.

Mr. John Finlay: So I take it you see that as not a penalty. I'm not sure that—

The Chairman: I think what you're saying is if somebody hasn't filed for 20 years, you want to go back three years, and the 17 years before that are waived. Am I correct in saying that, Mr. Lacombe?

Mr. Barry Lacombe: Under the voluntary disclosure policy, there are no penalties, but interest is charged on taxes owing.

The Chairman: And how far back do you go?

Mr. Barry Lacombe: Normally we would go back maybe three or four years, something like that.

The Chairman: So if somebody hasn't filed for 25 years, you'd only go back three or four years?

Mr. Barry Lacombe: That's correct. And the reason the interest is charged is that someone's had use of that money. So it's not really a penalty.

Mr. Shahid Minto: Mr. Chairman, on the interest, Mr. Lacombe is absolutely right. Earlier I made the point that there is a fairness package also, so that if someone has had a real hardship in life—say their house or business burned down or something like that, or an act of God happened—then the department has the discretion and does use the discretion to waive the interest.

Mr. Mac Harb: That's very good.

The Chairman: Thank you to all the witnesses for enlightening us this afternoon.

I call the meeting adjourned.