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Antena 3 journalist Radu Tudor raises the alarm and explains that Romania’s budget loses a third of VAT annually, according to the European Commission in the report on the collection of this tax, the consequence is that the state has difficulties in complying with its main functions, respectively. provision of public services, according to an article written by Daniel Anghel, Partner, Tax and Legal Services Leader of PwC Romania.
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“The Romanian budget loses a third of VAT annually, according to the European Commission in the report on the collection deficit of this tax, the consequence is that the state has difficulties to fulfill its main functions, respectively the provision of public services. The indicator published by the EC, which measures the difference between the potential VAT receivable from the budget, estimated on the basis of all transactions in the economy and that actually collected in the state treasury accounts, is illustrative of the collection capacity of the tax administration. Although Romania has undergone many legislative and procedural changes over time, in the hope of improving the income level, the results have been needed for a long time. These shortcomings are all the more visible lately, as budget revenues have suffered in the context of the COVID-19 crisis and increased spending, “explained Daniel Anghel, reports Radu Tudor, on his personal blog.
According to him, the national budget deficit shows that, after the first seven months of 2020, the state spent 50 billion lei more than it received. In the same period last year, the deficit was 18 billion lei. While public sector wage and pension expenditures have risen steadily in recent years, accounting for 96.3% of tax revenue and social contributions to the budget, tax collection has remained at the same low level, around 26%. of GDP, which places Romania in penultimate place in the EU. In exchange for increased spending, the tax administration has not been strengthened in recent years through the implementation of IT systems, staff training, or the initiation of coordinated reform processes.
Daniel Anghel points out that, given a budget deficit estimated at 8.6% of GDP in 2020, a possible tax increase next year to compensate for gaps and financial spending is not a medium and long-term solution for Romania, especially in Romania. the context of the crisis when economic operators need incentives, not an additional tax burden.
“Better collection of existing taxes would help balance the budget, and reducing the VAT gap is not only possible, but necessary and mandatory. In fact, the EC quantifies the VAT collection gap precisely to help Member States to develop well-targeted measures and control their effectiveness, ”explained the cited source.
Thus, he gives the example of Poland, a country where the VAT collection deficit fell to 9.9% in 2018 (the year analyzed by the most recent EC report in September 2020), from 24% in 2014. At the same time, Romania recorded a gap of 33.8% (2018) compared to 38% in 2014.
According to EC reports, the Polish VAT gap increased considerably between 2006 and 2011, from around 12% to more than 20% of potential revenue. In 2012, its size peaked at 25.6%. Aware of the magnitude of the losses, in mid-2016, the Polish Ministry of Finance announced a plan to reduce the VAT gap to around 15% over the next 3 years. The goal was achieved earlier as a result of concrete measures to improve both tax compliance and efficiency.
“In two years, Poland has managed to reduce the VAT collection deficit to almost a third of its size, thanks to actions taken to strengthen the Polish VAT system, based on three pillars: modern legislation, efficient administration and close cooperation with The positive result was achieved through a series of legislative solutions and the development of legal instruments used by other EU countries (for example, investment mechanism of the taxable person, joint liability). However, they have an effect limited. Priority was given to equipping the tax administration with innovative systemic solutions and modern analytical tools. As a result, both the collection of VAT and other taxes and duties have increased considerably. How did the Polish Ministry of Finance fare? a diagnosis of the main problems and found timely solutions for each of them, thus finding that they were missing: a based on a database with taxpayers, effective sanctions for fraudsters, a monitoring of money transfers, effective analytical tools for detecting irregularities. At the same time, it established that the structure of the tax administration is inefficient, that false invoices are used massively and that certain sectors are more exposed to fraud. For each of these problems detected, concrete measures were taken ”, it is also shown in the article signed by Daniel Anghel.
In order to remedy the base situation with taxable persons, Poland has drawn up an online “Black List” of entities not registered or removed from the VAT register. The conditions for refusal of registration and removal from VAT registration have been clarified. As of January 2017, almost 256,000 entities have been removed from the VAT register.
The “White List” has also been implemented, a modern and up-to-date taxpayer list that provides free and easy access to information such as VAT registration codes and B2B bank accounts.
In order to have effective sanctions against fraud, the administrative sanction of 30% was introduced for underestimating the VAT paid and 100% in case of participation in a fraud system. Modifications were made to the Penal Code, significantly increasing the penalties for issuing and using false invoices.
In addition, a state revenue management entity, KAS, has been established. The tax administration, customs service and fiscal control, which previously operated separately, were strengthened. KAS works closely with the police and related services to combat VAT fraud, with new features being added, including centralized tax analysis and tax advisories.
“Monitoring money transfers with the help of efficient analytical tools led to the implementation of the IT solution – STIR, a system to monitor bank transfers with algorithmic analysis (big data) to immediately identify bank accounts used by scammers, respectively abnormal transactions and provide information about them to the tax authorities. Thus, the tax authorities can block the account when there is a risk of fraud greater than 10,000 euros. The implementation of the “Modified Data Warehouse JPK-VAT” solution aimed to reduce the phenomenon of false invoices and facilitate the verification of sales and purchases in the online system based on the standard tax audit file (SAF-T). Therefore, you can cross-check invoices. Due to the implementation of the SAF-T, in January 2018, 1.6 million companies (97% of registered taxpayers for VAT purposes) submitted data on economic transactions in electronic format to the tax administration online. These data are collected by the tax administration directly from the taxpayers’ financial and accounting systems ”, it is also shown in the cited document.
For the same purpose, the itemized VAT payment mechanism was applied only for internal B2B transactions settled by bank transfers at the customer’s decision. Within the mechanism, only one money transfer is made: the invoiced amount is automatically divided into two separate accounts: the net amount in the settlement account and the VAT in the VAT account of the taxpayer. The mechanism is accompanied by a faster VAT refund procedure (25 instead of 60 days), Anghel explained as well.
Regarding the identification of the sectors most susceptible to fraud, the fuel package has been implemented: a set of measures to combat VAT fraud, in particular carousel fraud related to intra-community trade in liquid fuels. For these operators, the obligation to pay VAT appears in principle within 5 days after the purchase of fuel. Another solution to combat fraud in this sector is the transport package – SENT, an online tracking system for the transport of goods.
“The EC report warns that the coronavirus pandemic has drastically disrupted the EU economy and VAT revenues could be severely affected.” At this time more than ever, EU countries simply cannot afford such losses, says the cited report, recommending that member states take concrete action. The Polish example should encourage other states, including Romania, to implement similar plans to improve tax collection, “said the PwC representative quoted by Agerpres.
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