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Ben SopelDirector, Sales Integrity Program
Ministry of Finance
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Ben SopelDirector, Sales Integrity ProgramOntario Ministry of Finance
Electronic Sales Suppression
Small Business Innovation Challenge | Partnering Forum
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Overview
• About the Sales Integrity Program• The Challenge • Background and Current State• Problem Statement• Desirable Outcomes
Small Business Innovation Challenge | Partnering Forum
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Sales Integrity Program
• Ontario’s Ministry of Finance (MOF) has launched a sales integrity program to address the problem of electronic sales suppression (ESS)
• In June 2017, MOF established a project office to manage the design and implementation of the sales integrity program
• The program’s focus is to increase the integrity of transactions at the point of sale and enhance the data analytical capability to identify ESS
Small Business Innovation Challenge | Partnering Forum
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Electronic Sales Suppression
Small Business Innovation Challenge | Partnering Forum
When ESS is leveraged:
Select items are deleted from the electronic transaction record, falsifying the number of taxable transactions and allowing an individual to retain the difference in cash
The transactions are also reordered so that nothing seems amiss to the tax authorities, or business owner if ESS is undertaken by employees
• ESS is one of the most effective business-to-consumer sales suppression tactics which involves the manipulation of point-of-sale (POS)/electronic cash register (ECR) systems
• ESS is an underground economy (UE) activity that refers to the deliberate and illegal practice of underreporting income, primarily to avoid the payment of taxes
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Implications of ESS - Case for Change
Small Business Innovation Challenge | Partnering Forum
Un-level playing field Creates an un-level playing field for those businesses that choose to pay their fair share of taxes
Reduced business income Reduces businesses income when employees use sales
suppression schemes to steal money
Reduced government tax revenue
Reduces tax revenue used for essential government services
Risk for businesses Creates a risk for business owners when employees use these schemes and are discovered by tax authorities
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Times are Changing……
Small Business Innovation Challenge | Partnering Forum
POS platforms are many, and
constantly growing, e.g. Online POS,
Mobile POS, Cashier-less POS
etc.
ESS technology is advancing, making
detection more challenging, e.g. Phantom-ware,
Zappers etc.
Payment technology is
becoming more and more
advanced, e.g. EFT, Online etc.
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Magnitude of the Problem• UE activity for 2013 totalled $45.6 billion in Canada or about 2.4% of gross
domestic product (GDP), by Statistics Canada
• Three industries (i.e. residential construction, retail and hospitality) accounted for more than half of the total UE where cash transactions are common
• The total value of the UE in Ontario was estimated to be $16.7 billion or about 2.4% of GDP, similar to national GDP ratio
• Quebec implemented tamper-proof secure recording modules in the hospitality sector to combat ESS; Revenue Quebec estimates the program will have recovered more than $2 billion in taxes by 2019 that otherwise would have been lost
Small Business Innovation Challenge | Partnering Forum
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ESS Solutions
Small Business Innovation Challenge | Partnering Forum
ProhibitCertify
RecordTransmit
Ban and prohibit sale and use of ESS software / devices
Require all POS systems to be certified against tampering
Require all POS systems to record all sales transaction data
Require all POS systems to record and transmit all transaction data to tax authority
Not widely implemented.
Used in Rwanda, Slovakia, Italy,
Hungary
Used in Quebec, France, Belgium, Austria, Sweden
Used in Germany, Netherlands,
Greece
Current state in Ontario
• Multiple jurisdictions have designed and implemented solutions to combat ESS primarily focused on the certification of POS/ECR systems and/or the secure recording of sales transactions
• These solutions have largely been designed by tax authorities leaving an opportunity for innovative technology companies to determine if alternate solutions are feasible
Electronic Tax Register Electronic Fiscal Printer
Sales Control UnitElectronic Signature Device
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Problem Statement
Small Business Innovation Challenge | Partnering Forum
• Recognizing the importance of a fair and competitive market and to ensure the integrity of the sales tax system, there is an identified need for a cost-effective, user-friendly and secure means of ensuring sales transactions are recorded and sales taxes are being remitted in line with tax obligations
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Desirable Outcomes
Small Business Innovation Challenge | Partnering Forum
The solution should:
create a verifiable, tamper-proof record of completed taxable transactions
enable transaction records to be accessed easily for audit purposes and to identify ESS
be fully automated, with no manual processing and minimal process burden on businesses
protect consumer privacy
be easy to integrate into existing and emerging sales platforms/systems
address evolving payment and business models
be scalable
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Additional Considerations
Small Business Innovation Challenge | Partnering Forum
To encourage adoption the solution may include end-user benefits such as:
decreased sales tax reporting effort by automating accounting and reporting
requirements
provide increased protection against employee related theft
simple integration with existing business accounting software
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Small Business Innovation Challenge | Partnering Forum
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