For the second year in a row, Morocco has organized its Gitex Africa convention under the high patronage of His Majesty King Mohammed VI, in the lovely city of Marrakech. Data Tech International had the honor of attending the convention, which proved to be a big success.

What is Gitex and why is it important?

Gitex stands for Gulf Information Technology Exhibition and, together with Gitex Global, represents the largest and most inclusive tech and startup event.

Africa is slowly but steadily emerging as a major player in the global digital economy, with experts forecasting tech investments to soar from $115 billion to $712 billion in the upcoming 25 years.

Gitex serves to help local and international companies connect with tech leaders, governments, startups, and investors to foster innovation and collaboration. Topics range from digital finance, cybersecurity, and the future of health, with a special focus on AI.

Last year, Gitex’s organizers counted around 25,000 crowd attendees, while this year’s estimations show twice as many attendees. Around 1.500 exhibitors, companies – including DELL, Huawei, Microsoft, HP, Lenovo, Cisco, and Epson – entrepreneurs, investors, or startups looking for investment, coming from 130 countries, attended the second Gitex Africa tech show. To drive the talks, 53 distinctive speakers were carefully chosen to present.

Lessons learned at the convention

Finding local partners is crucial: To be successful as a global company, it is fundamental to build strong, resilient connections with local experts. Local companies can advise how to deliver more efficient services, especially regarding solutions which target governments. They offer invaluable insight into the tax administrations’ needs, which are unique for each jurisdiction in which we operate.

Using off-the-shelf solutions is a key factor: When governments try to develop their own, in-house solutions, historically they almost surely fail. Alternatively, using a tried and tested solution such as TaxCore has proven to be a more successful venture. Having developed and deployed our solutions in numerous jurisdictions around the world, our cumulative know-how is a key aspect of our success, allowing us to avoid common pitfalls and to focus on specific local needs.

This experience has been extremely positive as DTI’s delegates have had the chance to interact and connect with local and international companies that share the same goal – to provide tax authorities with the most advanced and reliable solutions to help them in their fight against the gray economy, revenue gaps, fraud detection, and tax evasion.

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However, it failed to comply with an important requirement regarding pricing – the EU countries mandate that the total price, advertised to customers, must include VAT, that adheres also to Twitter. In the US, taxes the practice is to add them to the displayed price only at the checkout, which might be the reason for the mistake.

The problem about monitoring transactions to ensure a proper tax collection

On a larger scale, monitoring transactions and collecting taxes with international services is an issue tax authorities face around the world. Efforts to “domesticate” the revenue from cross-border sales (which have become so prominent over the past couple of years due to the rise of social platforms and streaming services) have proven to be both a technological and legislative challenge.

One reasonable solution was proposed by Professor Ainsworth who says that currently available technological solutions, such as TaxCore®, could enable tax authorities to simply extend their regulations “to all nonresident suppliers (including suppliers of remote services)” – an approach he calls “fighting technology with technology” (Data First, Tax Next: How Fiji’s Technology Can Improve New Zealand’s ‘Netflix Tax’, Tax Notes, Volume 94, Number 2, April 8, 2019).

TaxCore® solution even enables the customers to perform a real-time receipt verification after the purchase. The verification allows them to also review all relevant receipt details, including a price specification of all charged items. Awareness of such powerful tools in the hands of both customers and tax authorities would make companies like Twitter think twice about how they communicate their prices and VAT collection.

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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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As a lot of tax authorities worldwide are slowly importing and adjusting fiscal e-invoicing and tax collecting systems somewhat successfully, there were some questions at hand that caused quite a confusion.

One such matter is tipping – to many taxpayers who own their own businesses (cafes and restaurants in this case) this part can be tricky and often cause misinterpretation. Luckily, some tax authorities made a decision to leave this freedom to the businesses.

Countries, such as Slovenia, deem that tips don’t need to be taxed, and as such, don’t require being part of fiscal receipts. Therefore, a waiter using the POS doesn’t have to register their tip at all.

In other countries, however, tipping seems to be a bit more complex, yet, the rules are simple and straight forward. In the example of the Czech Republic, we can see that handling tips has been described in three different scenarios.

Handling Tipping

Taxpayers in the Czech Republic handle tips depending on their business policies. Some facilities claim that tips are not business income, and as such, they should not be recorded on a receipt. Some other businesses, however, claim tips, and as a result, they must be recorded. Here are three examples of tipping according to the rules of the Czech Republic Tax Authority.

1. In case a business claims that tips belong to the employees and are not the business’ official income, the data on the receipt should look like this:

• Total amount of sales 182.00 
• Total tax base with the first reduced VAT rate 158.27 
• Total VAT with the first reduced rate 23.73 

Let’s assume that the customer ordered food and drinks for the total price of 182 CZK. Once the first reduced VAT rate of 15% is applied, the price is 158.27 CZK. However, in this scenario, the customer decided to pay 200 CZK to the waiter, which means that 18 CZK was a tip, and as such, is not shown on the receipt data.

2. In case that tips are a part of the business income, somewhat different rules will apply. The tip still doesn’t enter the VAT base as it is voluntary, not agreed upon, and has no impact on the final product (in this case, dinner and drinks). Although, the tip will be included on the receipt itself, meaning that all the 200 CZK will be shown.

• Total amount of sales 200.00 
• Total tax base with the first reduced VAT rate 158.27 
• Total VAT with the first reduced rate 23.73 

3. In case the tip is retained by the owner instead of the staff or the business, the same rules as in scenario 2 apply. The only difference is that the staff learns that the guest wishes to leave a tip only after printing the receipt. In these conditions, the same receipt as in example 1 has already been printed, so now the tip is registered separately with a different, single message:

• Total amount of sales 18.00 

Obviously, in none of the three scenarios is the tip taxed – the only requirement is for it to be recorded clearly on the receipt in case a business claims it.

In the case of Taxcore, all three of the scenarios are also very much adaptable. As a platform, TaxCore allows a lot of freedom (within the legal borders) to the taxpayers. In countries where TaxCore exists and is being used, tipping can work nearly the same; it can be recorded on the receipt without being taxable.

So, no matter the laws and the rules of the tax authority in question, TaxCore can adapt and fulfill all the potential needs.

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VAT (Value Added Tax) has been a well-groomed system by many of the world’s richest economies for years. And once developing countries witnessed just how much VAT can help their rising economies, implementations were in order.

The system just might be even more important in developing economies as it makes it very difficult to evade taxes. And not only that, but it maintains doing so in a very gentle manner, one in which taxpayers are not harshly punished.

When we speak about major economies of the world and how well they use VAT, one would think that the USA would be the pioneer of this system. However, surprising to many, the USA is probably the only developed economy not taking advantage of VAT. Why is this the case, and how much is the economy suffering because of it?

According to The Revenue Statistics 2019, developed countries collect 34% of gross domestic products in taxes, whereas the USA collects about 27%. In most of the developing countries, however, this number ranges from 10% to 20%. The reason behind this is quite obvious, it is harder to collect taxes in developing economies due to a lot of economic activity being informal.

But, when it comes to realizing the importance of tax revenue, there is absolutely no difference between the USA, or, say, Bangladesh. Everyone realizes tax collection plays a crucial role in the overall infrastructure, health, and education of a country.

This is where VAT comes into play.

The Importance of VAT

VAT taxes personal income, only indirectly. Governments collect VAT from businesses, and not households. This leads to a much higher tax collection numbers as businesses naturally bring in more income than an average household – especially in developing countries.

Moreover, in these economies, a lot of people tend to be self-employed, which brings about many problems taxing them. They also often falsify their reported income.

So why might the USA need the VAT system if it is a developed economy? Mostly because the country is losing a lot of money annually by not having this system at all. The IRS estimates that over 60% of self-employed people have their income underreported.

Unlike a sales tax, VAT is paid at every point production stage instead of only at the point of sale. This means that the VAT as a system easily enforces itself.

However, this system brings us to one crucial problem; if a customer is buying a product, they don’t feel obliged to ask for a receipt. This is because they can’t deduct the cost from their income the way businesses can. Therefore, many B2C transactions remain underreported, which presents a significant issue for the local tax authority.

Is There a Solution for the lack of VAT in the USA?

The Government of Fiji in collaboration with TaxCore came to a perfect solution to motivate consumers to ask for a receipt. It presented the CCA (Customer Compliance Award) program. This is a fiscal lottery which a customer can enter by scanning the QR code on the receipt. This way, all the receipts are issued, and customers are helping the tax authority further confirm them by scanning.

If the USA were to ever decide on the implementation of a VAT system, having a good, transparent platform such as TaxCore could bring billions in tax revenue. Moreover, the CCA program would motivate both consumers and vendors to comply. The first would be eligible for rewards, and the latter could build up marketing campaigns around it.

The post The Lack of VAT in the USA and the Problem It Presents appeared first on Dti.

Tax Fraud in the EU

Only in 2017, the member countries of the European Union lost approximately EUR 137.5 billion to tax fraud according to data on the EU’s official website. Unfortunately, this trend continued up to 2019 where not much has changed and the loss is still measured in billions. The issue hides behind the differences in tax collection between the members. For example:

• Luxembourg – 0.7% VAT gap
• Sweden – 1.5 VAT gap
• Cyprus – 0.6% VAT gap

Evidently, tax collection and paying for taxes in these countries does not present an issue. However, the situation in some other EU states is completely the opposite:

• Romania – 35.5% VAT gap
• Greece – 33.6% VAT gap

These results mostly indicate the performance of national tax administrations and whether they require modernization or not.

Using Zappers as a Means of Tax Evasion

Zappers are add-on programs that merchants with ECRs or POS systems often tend to use. The problem with them is that they don’t skim all sales, and they never skim credit card transactions. This allows for a lot of space in tax evasion that tax authorities have no way of detecting.

Disappointingly enough, zappers are mostly used in developed economies – for example, Sweden, Germany, and Spain, just to name a few. In Sweden alone, approximately 70% of the ECRs have Zappers installed. Therefore, Sweden is suffering great amounts of tax loss every year that could help boost the economy even further.

Out of the EUR 137 billion in tax loss in the EU, about EUR 20 billion is lost in the restaurant sector alone. The four countries that lose the most in tax revenue are Germany, France, Italy, and Spain.

Total Tax Revenue losses in the USA

On the other side of the pond, the situation isn’t much better. Compared to most of the Western governments, the USA falls very far behind. In 2018, tax revenue at all levels of the US government was 24% of the overall GDP.

The States are behind most EU countries, such as France, Denmark, Belgium, Czech Republic, Turkey, and Greece. They are also behind some Asian countries, such as Japan and South Korea. Making tax revenue losses in the USA, a big issue.

How Are Countries Fighting Against tax revenue losses?

Given that most developed countries are well aware of these problems, which methods are they exactly using to fight against them? Unfortunately, the methods being used are quite outdated and still rely on traditional audits. However, the governments are slowly realizing that the best way to fight technology is with technology.

TaxCore has helped developing countries such as Fiji and Samoa completely evade issues similar to these. Thanks to the complete digitalization of tax collection, any fraud or evasion is noticed immediately. Once a potential tax fraud is discovered in real-time, the tax authority can immediately send out an inspector to investigate the issue. This further motivates taxpayers to abide by the law and the loss of annual tax revenue remains at its minimum.

To find out how TaxCore can help governments battle tax fraud, feel free to contact us.

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The biggest benefit of the system, however, is its potential to completely crack down tax evasion in the country. TIMS is expected to increase tax compliance and battle the so-called “hidden economy.”

Most importantly, though, T.I.M.S. allows for fair competition and an atmosphere in which it will favor those who are 100% compliant. It will protect fair businesses from those who find ways to evade taxes and can, therefore, sell their products at significantly lower prices.

Lowering the Costs of Tax Collection and Auditing

The Tax Invoice Monitoring System provides many benefits, one of them a being non-expensive method for tax collection. Additionally, there are a few more methods that are supposed to help in wasting money unnecessarily.

Printing receipts for example. Each receipt will come out with a QR code that a customer can scan by simply using any QR scanner on Android or iOS-based phones. By scanning the code, the customer will receive a clear overview of what they purchased and how much VAT they paid for. This way, the customer will additionally verify every single receipt which will be forwarded to the tax authority.

Although paper-based in the present, digital receipts might be a possibility in the future, depending on how the situation develops. Moreover, T.I.M.S. comes with a CCA (Customer Compliance Award) program.

By scanning their receipts, customers will be able to take part in the lottery where vendors award them by offering different awards. This will indirectly impact the fact Samoans tend to rarely ask for receipts and will hopefully break this habit.

The Prime Minister of Samoa, Tuilaepea Aiono Sailele Malielegaoi also encouraged customers to ask for a receipt. Otherwise, they are merely helping non-compliant businesses break the law.

The Launch of T.I.M.S. in Samoa: Business groups

The implementation process is expected to begin in July this year, and it will be rolled out in phases. Based on several criteria for selection, the first group of businesses come from various industries. Other businesses are expected to join within the next 12 months following the first rollout.

The whole process will be very transparent, and the businesses will be notified in time so to give them enough space to comply.

The launch of T.I.M.S. in Samoa will be another effort of Data Tech International with one more of the Pacific Islands, followed by the success of Fiji, to embrace TaxCore as one standard electronic invoicing platform.

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To put it simply, some states control their taxpayers much more, leading to a drastically lower percentage of tax evasion. However, could this be the sole reason why the EU lost 11.2% of the total VAT revenue last year? And is the European Union the only one facing this problem?

Can Technology in Taxation Help?

Many believe that current tax collection laws aren’t suitable for the 21st century anymore, deeming them completely outdated. The problem mostly hides behind the fact that governments and their authorities are simply not present enough; which allows for intentional misinterpretation of tax laws.

However, governments are starting to step in by using technology as one of the main assistants to help them in the process of modernization. Moreover, they are changing their stance as to why some taxpayers avoid their legal obligations – could it be that the whole process is tiresome and overcomplicated for an average Joe?

By using technology, tax authorities are able to establish a more transparent system, where avoiding paying taxes becomes very difficult. Additionally, this very technology can help taxpayers comply with local laws much easier, and it opens a window of opportunities on how to make the whole process faster. Most importantly, tax authorities worldwide can now digitalize the list of their taxpayers which they can further share with any jurisdiction necessary.

Some Countries Are Already Adapting

A handful of countries have already seen the potential in digitalizing their tax and fiscal systems. It was companies like Data Tech International (DTI) that helped these countries digitalize and easily track every single fiscal receipt via a certain system as a result. In the case of DTI, we developed a platform called TaxCore to allow tax authorities track any possible illegal activities or tax evasion performed by taxpayers.

Overall, it is important that the government implementing a new system addresses the problem, comes up with a definite solution, and informs the population about it. It should also come up with very good arguments as to why the new digital system is good and works both ways. After all, society needs to benefit from these changes as much as the government.

The Future of Technology in Taxation

It is only a matter of time before all the countries start taking advantage of everything technology can do for them. The fiscal systems most of the governments still uphold to are out of touch with modern times.

Unfortunately, most jurisdictions believe that the whole process of abandoning an old but functional system for a new one is long and wearisome. This is the main reason why a system that was supposed to be abandoned 20 years ago is still in use.

Fortunately, DTI is already proving to many that this transit from old to new isn’t complicated nor lengthy; instead, it can be very fast, efficient, and beneficial.

The post Technology in Taxation – Washing off the Grey Economy appeared first on Dti.

In 1997, its official name was changed from Western Samoa to Samoa. This was the point where a lot of changes were due for this nation, the latest one being a completely new tax collection system.

In July of 2019, the Minister of Revenue in Samoa, Mr. Tialavea Tionisio Hunt, reviled the plan that the country will be rolling out a new tax monitoring system to erode tax evasion. The Minister announced that this new system will be web-based, and it will enable real-time monitoring of businesses and taxpayers.

Samoan Ministry of Customs and Revenue, taking in consideration the successful implementation of our software, TaxCore, in Fiji, has offered the contract to Data Tech International, effective this month, when the implementation of TaxCore should officially begin.

The first order of business after signing the contract is setting up the hardware infrastructure and supporting all the taxpayers in Samoa. Additionally, DTI will provide training and knowledge transfer to the Ministry of Customs and Revenue of Samoa as part of the 5 year deliverable and maintenance agreement.

Data Tech International and its flagship product, TaxCore, strives to fight against the gray economy to ensure its worldwide eradication, among the benefits for the tax authority to bear in mind about the system, it is important to highlight:

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The point of the presentation was to bring up to attention that the systems used by tax offices worldwide are outdated, and they fail to find their place in the 21^st century. Mr. Goran spoke about how thanks to technology, each and every customer is someone who can register fraud detection. Every digital (or physical) receipt is a chance for a consumer to win an award, therefore they will always scan the QR code in order to enter the lottery. This further shows the legitimacy of the receipt and any possible discrepancies the local tax office can easily detect.

Just as 2017 was important for Data Tech International as a brand, 2018 was important for TaxCore and its many future achievements. TaxCore serves as a perfect example of how real-time tax compliance can be easily enforced without damaging taxpayers.

Moreover, a digital invoice system such as TaxCore is the perfect tool to detect and fight fraud without the long procedures that usually end up in frustration on both ends.

This workshop, as other in the past organised and chaired by Prof. Dr Jeffrey Owens at the WU, have provided practical insights on the global trends of VAT/GST adoption and application to digital transactions, treatment of online platforms and ways to achieve higher level of tax compliance. Government officials, international and regional organisations, business and academics have mutually benefited from the exchange of opinions, experiences and best practice.

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