Although poor tax collection is a problem that most developing countries face in the present, it doesn’t mean that the already developed countries don’t suffer from similar issues. And although paying for taxes and collecting taxes is considered to be one of the fundamentals of any democratic society, the number of economically stable countries who fail to comply is surprising.
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 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.
How Are Countries Fighting Against Tax Evasion?
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 here.