Prosecutors fault politicians for ignoring problem of untaxed work

Open letter sent to Helsingin Sanomat

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Lawyers specialised in prosecuting economic crimes at the Helsinki Prosecution Service have lashed out at what they see as inaction by the government in fighting the “grey economy”, especially in the construction business.
      According to an open letter sent by prosecutors to Helsingin Sanomat, politicians are sitting idle, even though the problems in the construction business of tax evasion through the use of undocumented employees, and the trade in fraudulent receipts, could be eliminated through changes in the taxation system.
      The prosecutors say that an inverse value-added tax system should be implemented in the construction business, and companies should be required to provide information on a quarterly basis on contractors whose services they have used.
      “Cases of trade in receipts are increasing all the time. It seems bizarre that nothing is done, when we consider the resources that the police, prosecutors, and court system have to use for it”, says prosecutor Otto Jämsén.
      “Even now there is a case before a court, in which there are about 100 defendants in a process that is lasting nine months. It is bureaucracy at its worst.”
     
According to a a report by the Ministry of the Interior, more than half of police officers investigating economic crimes are focusing on the trade in receipts by construction companies.
      In April there were 142 cases under investigation by 146 officers - more than total number of officers on the police force in the city of Kuopio.
      Each year about EUR 130 million in potential VAT revenue is lost, which could be collected if certain changes were made in the taxation system, the prosecutors say.
     
Minister of Finance Jyrki Katainen (Nat. Coalition Party) downplays the prosecutors’ concerns.
      “They could not feel that way if they knew what we have done”, Katainen says.
      “We all have the same goals, but different means.”
      The means chosen by the Ministry of Finance include a campaign by tax authorities, which began this year, aimed at effectively fighting tax fraud in the construction business.
      “Let’s see first what can be achieved through the traditional increase in resources. We know how the present system can be circumvented, so it is easier to interfere with fraud. Not even a new system would be foolproof”, Katainen says.
      He also notes that reforming the system would require tens of millions of euros in investments in the construction sector.
     
At the Ministry of Finance, grey economy expert Markku Hirvonen does not believe that the ministry’s actions will be enough.
      “Tax authorities can run to construction companies as much as they like and it will not come to an end. Trade in receipts will not end as a result of action by officials, because it is a lucrative way to earn money”, Hirvonen notes.
      He says that upgraded inspections often do not take place because police help is needed to carry out such action; the police do not have time to assist in such a way because they are busy sorting out their own cases involving fraudulent receipts.
     
While it is conceded that changing the VAT system would not eliminate shady dealings, it would reduce the losses that it causes society, and reduce the profitability of crime.
      “Proposals for such changes have been put forward for ten years, but changing the system has stalled in the business community and the Ministry of Finance”, Markku Hirvonen says.
      “It makes you think what the real reason might be for opposing change. At least the biggest providers of election campaign financing are companies which benefit from construction that is made possible through untaxed labour.”


Previously in HS International Edition:
  Amendment fails to root out illegal dealing in receipts among construction firms (22.10.2007)
  Illegal labour coming from more and more distant countries (5.2.2007)

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