For the most part, the fight against non-compliant taxpayers has been quite successful, and each country tried to force them to comply in its own way. However, did this fight cause casualties? Did complying taxpayers suffer without a reason too? It appears that this is exactly what happened, unfortunately.

How did these changes affect most businesses though? For most of them, these changes meant additional operating costs. To make things worse, these businesses have not seen many results for their effort either – a lot of countries failed in their effort to fight against the grey economy. Therefore, each new rule supposed to fight against tax and VAT fraud comes as no surprise to honest business owners, who feel very pessimistic. Authorities seem to ignore most of the remarks and firmly claim that the new systems implemented are doing their job, but the reality seems a bit different.

What Did Surveys Find Out?

There were many surveys performed in the past to find out how VAT fraud can be fixed. They absolutely brought a lot of insight into how business owners feel about VAT fraud in general, companies that flourish because of it, and new systems imposed by the governments.

When asked how VAT fraud affects their businesses, business owners replied as follows:

• 55% believe that the new tax laws will not affect fraudsters but bona fide companies instead;
• 50% say that fraud leads to the unfair competition which directly damages their business and smooth functioning of the business market.
• 49% believe it is the lack of fiscal predictability damaging their business; and
• 39% believe it is unpredictable VAT costs

Believers assert that authorities have been so focused on legislative and procedural provisions lately that they failed to notice digitization, and the reform of the tax system has completely slowed down. We can argue  that combating VAT and tax fraud solely through legislative measures burdens business owners with excessive regulations, costs, and paperwork. On the other hand, reforming and modernizing tax collection and fiscal systems creates perfect ground that’s fertile enough to help compliant businesses and punish those who are not at the same time.

The survey also found out that a business can often get into trouble for working with fraudulent partners without even knowing it. When asked if they should impose penalties for this, this is how companies responded:

• 92% indicated a refusal to deduct expenses;
• 70% said tax investigation was in order;
• 60% said there was a rejection of the right to apply to VAT exemption;
• 37% were targeted as third-party garnishment;

What have the respondents to say?

Overall, 75% of the respondents said that they had to go through unannounced tax fraud check-ups only for doing business with a specific non-compliant partner. The situation seems unfair as these respondents had no idea their partner wasn’t compliant.

Most authorities believe that to avoid risks, companies should perform their own research and undertake checks of the partners with whom they work. Respondents said these are the first red flags they notice if a partner isn’t compliant:

• 78% said they first notice unusual payment conditions;
• 70% said they first notice that the price is significantly lower than it should be;
• 70% first notice negative public information;
• 53% said they get worried when important logistic details are missing;
• 23% get worried when an unusually large quantity of goods is involved.

However, only 8% of the respondents said that they actually notified authorities when they had serious suspicions. 62% confirmed they immediately cease relationships when they become suspicious, and 58% impose preventive contractual safeguards.

How TaxCore Deals With this issue

Data Tech International and TaxCore successfully managed to scan the market and find out where the real problem hides. It is the absolute transparency and proper connection that can eliminate the grey economy. With TaxCore, each business connects to a Tax Authority’s server where the system transfers each sale in real-time. That’s how Tax Authority can immediately be aware if a certain business is trying to hide some sales just to avoid paying for taxes. Moreover, each customer indirectly helps tax authorities catch fraudsters by having the option to report a receipt, something TaxCore successfully implemented. Most importantly, the whole system comes at a minimum cost for taxpayers, with countries often covering the costs completely.

VAT and tax fraud should present one of the most serious concerns for authorities because they are the main factors of revenue loss to national budgets. Countries are losing billions annually due to this, and a good tax and fiscal system are crucial to putting a stop to this.

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DTI and Avatar had a mission, and it was to explain that digitalisation of invoices can greatly help tax authorities fight tax evasion and VAT fraud. The point was to show many benefits of such systems, starting from small things such as motivating the consumers to ask for their receipts.

Many African countries tend to struggle with this as consumers still didn’t grow a habit to always expect a receipt. This helps the grey economy a lot as many irregularities remain under the radar; completely undetected by tax authorities.

This serves as a firm proof that real-time transaction data from a taxpayer to a tax office is possible. Although many authorities over the world are still quite used to the systems devised at the beginning of the 21^st century, bringing technology into this story can only help taxpayers comply.

What seemed to be the most important was the fact this solution comes at no or very low cost. This was the perfect inspiration for both African and the rest of the countries to consider implementing these new models into their system.

SEE AGENDA HERE- ZM2015-103

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