The past five years have seen a rise in the fight against VAT fraud. With this, a lot of things had to be changed as well – for example, a better tax monitoring system had to be implemented, as well as systems that would successfully eliminate unfair competition. Unfair competition is a term usually related to businesses and companies that try to avoid paying taxes any way they can. As a result, they profit a lot more than complying companies.
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, it comes as no surprise that honest business owners feel very pessimistic with each new rule that’s supposed to be fighting against tax and VAT fraud. 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
It is believed 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. VAT and tax fraud cannot be fought only by legislative measures because this only leads to excessive regulations that actually burden business owners with both cost 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 penalties should be imposed 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;
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 they get involved with. 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 is connected to a Tax Authority’s server where each sale is being transferred 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.