CEE countries must share best practices better to successfully combat VAT fraud
Officials from the ministries of finance and economy of five CEE countries (Czech Republic, Hungary, Poland, Romania and Slovakia) have called for a joint approach to combat VAT fraud and increase VAT collection in a conference hosted by PricewaterhouseCoopers (PwC) in Budapest on Thursday.
According to the EU Commission data, the EU Member States from Central and Eastern Europe have among the highest levels of VAT Gap (the difference between the VAT revenues that the state budgets should collect and actual VAT revenues) – ranging from 22.4% in the Czech Republic, to 41.1% in Romania. The other three CEE countries represented at the conference also have high levels of VAT Gap – Hungary (24.4%), Poland (26.7%) and Slovakia (34.9%).
In recent years, tax administration reform and modernisation programmes have been initiated by several CEE countries in an attempt to reduce the VAT Gap.
“This common problem throughout the region is costing the state budgets of our five CEE countries around 27 billion Euro annually. To put it into perspective, that’s substantially higher than Slovakia’s overall tax revenues per year (21.8 bn Euro in 2013, according to OECD data),” commented Daniel Anghel, PwC CEE Indirect Tax Leader.
“In today’s globalized economy, where tax evaders can easily switch countries of residence in order to take advantage of loopholes in the tax legislation, it is paramount for the CEE countries to tackle the issue of VAT fraud in a joint, coherent and coordinated manner. Thus, CEE countries should intensify their exchange of best practices and work together to successfully combat VAT fraud and reduce the VAT Gap. In addition to benefiting governments, a reduction of the VAT fraud would also benefit the business environment by diminishing hidden VAT costs and eliminating unfair tax competition”, he added.
Hungary’s Economy Minister Mihály Varga also attended PwC’s CEE VAT Anti-Fraud Conference, organised in partnership with the Slovak-Hungarian Chamber of Commerce, on the side of Andrej Babi¹, Minister of Finance of the Czech Republic.
“We have recently seen that VAT fraud patterns used in the past in Western European countries are replicated in CEE. Carousel fraud and missing trader fraud were identified in CEE in areas such as: scrap metal, food and agriculture industries, textiles, IT components, mobile phone, real estate and retail trade, said Tamás Lőcsei, Tax Leader at PwC Hungary.
“That’s why at today’s conference we presented the experience of various CEE EU Member States in dealing with tax evaders and what sort of legislative and administrative measures worked best in combating VAT evasion and increasing VAT collection”, he added.
Varga said the Hungarian government has been striving for years to expand the group of goods and sectors where reverse VAT payment is allowed.
He reiterated that of the HUF 300 billion year-on-year rise in VAT revenues in 2014, HUF 180-190 bn stemmed not only from economic growth by the whitening of the economy too.
As regards the EKÁER practice, the minister noted that over 48,000 businesses have registered until 20 September 2015. According to this year’s data, VAT revenues rose about 7% or HUF 140 bn compared to the same period of 2014. Not only online cash registers are to thank for this impact. The EKÁER system also played a significant role, he added.
The Hungarian government is to take further steps to combat the black economy. The planned measures include the launch of an electronic system of accounts and the introduction of online cash registers in services: garages, taxi services, gyms, wellness facilities and currency exchange services, Varga told the conference.