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Delivering Public Service for the Future
Moving past mistrust:Revenue agencies partnering with business to close the VAT gap
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VAT compliance is an increasing strain for businesses.
Figure 1. Businesses worrying peer organisations are gaining a competitive advantage through VAT non-compliance
Germany
50%Italy
80%Netherlands
66%United Kingdom
63%France
80%Spain
91%
There is a clear need for change, and digital technologies – ranging from mobile payment platforms to secure data exchange portals – have a key role to play.
Consumers are increasingly moving away from cash payments which is creating fresh opportunities for revenue agencies. In the United Kingdom (UK), three-quarters of all retail spending in 2014 was made using debit and credit cards – a dramatic increase from less than half in 2003 2. Data from these digital transactions can be sent to the revenue
agency direct from card providers in real time. And businesses recognise this potential: 82 per cent believe technology can play a larger role in securing VAT compliance (figure 2).
Some revenue agencies are already embracing digital technologies to simplify collection and compliance processes. In Canada, Québec’s revenue agency has introduced ‘black boxes’ into restaurants that will automatically capture sales data so that it is available to tax inspectors. In Portugal, the revenue agency already requests electronic filing of businesses’ tax receipts on a monthly basis, and is
now implementing software programmes that can detect anomalies and flag them to taxpayers. This enables more efficient allocation of inspection resources to wherever further investigation is needed. The Portuguese government even took compliance a step further, creating a tax benefit for individual customers who ask for a VAT receipt in some business activities (15 per cent refund of VAT paid, up to €250 per household). The government also launched a ‘Lucky Receipts’ lottery where each €10 of every purchases qualify for entry into a weekly lottery for a car.3
Digital is the catalyst
New research from Accenture found that 65 per cent of European businesses view VAT as a significant administrative burden. Only 10 per cent said the effort required to complete VAT processes was decreasing.
Survey respondents are also uncertain they are getting their VAT returns right, with less than half (46 per cent) expressing complete confidence in doing so. Nearly three-quarters (72 per cent) are even worried that competitors are gaining an advantage through non-compliance with VAT (figure 1).
In this environment, it is no surprise that a 2014 European Commission report estimated that EU member states lost €177 billion in VAT revenues during 2012 because of non-compliance or non-collection1. Revenue agencies must now seize the opportunity not only to redress the VAT gap, but also to reshape the compliance process with businesses, to deliver public service for the future.
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Figure 2. Businesses want revenue agencies to do more with technology to improve VAT compliance
Germany
75%Italy
91%Netherlands
66%Spain
86%United Kingdom
83%France
82%
From a revenue agency perspective, the digital era is transforming access to VAT-related data. But the success of these initiatives requires more than the use of digital technologies, it needs a real shift in the attitudes of stakeholders and the creation of a new relationship based on collaboration.
European businesses are ready to participate in more open relationships with the authorities if it provides greater simplicity and certainty. Indeed, 83 per cent of survey respondents say they would allow revenue agencies direct access to their data in exchange for a reduced administrative burden, and 81 per cent say that the ability to gain greater certainty over VAT compliance would motivate them to open up their data.
With more accurate data provided by businesses, increasingly in real-time, revenue agencies can apply smarter
analytics techniques to alert any potential risks earlier in the compliance process. In return, businesses receive greater certainty on their VAT liability, removing the fear of being hit with a large unpaid bill months down the line. For European businesses in our survey, the fear of being subject to a penalty, fine, or interest as a result of incorrect VAT filing is currently a top concern in relation to VAT, with 72 per cent saying this. Engaging in more open relationships with revenue agencies can play a huge role in alleviating those concerns in future.
For a more transparent, open model of VAT compliance to succeed, however, there needs to be greater trust between both businesses and revenue agencies, and existing distrustful – in some cases even adversarial – attitudes must be recalibrated.
There are some immediate issues for revenue agencies to target. Businesses surveyed by Accenture pointed to data security as their top concern, with 75 per cent of respondents worried about whether their information would be safe if they were to share data directly with revenue agencies. In the digital era, businesses are fully aware of their own responsibilities as guardians of customer data, and it is natural to tread carefully when sharing data with third parties. Another leading concern, cited by 68 per cent of businesses, is a lack of faith in revenue agencies’ ability to calculate their VAT liability correctly and that additional time would need to be spent resolving queries.
While these trust issues cannot be resolved overnight, the time is right for revenue agencies to start on the path towards a more collaborative relationship with businesses. And it is important that they adopt an incremental approach to doing so, in order to build a solid foundation of trust from the outset.
Revenue agencies will need to identify target groups of businesses to engage first, with these companies offered close support as they make the transition to a more open relationship, and potentially additional rewards offered too. More than half (53 per cent) of the businesses surveyed say they want the government to incentivise the adoption of new technologies to simplify the VAT process and improve compliance.
Small- and medium-sized businesses could be the initial candidates, given their significant contribution to the VAT gap—and their potential for faster internal change. Revenue agencies will also need to identify those areas where they are
already able to access the vast majority of transactional data, such as for retail merchants and restaurants. Clearly, there is no ‘one-size-fits-all’ approach, and we believe that small-scale pilots will enable revenue agencies to assess the most effective technologies to apply, before setting out their full-scale transformation strategy.
Achieving small successes at each phase will be crucial in reinforcing the goodwill on both sides. If businesses can begin to see the value in the process, they will quickly change any prevailing negative perceptions. And revenue agencies can make the most of the levers at their control, such as the promise of less frequent audit investigations for businesses that voluntarily share their data. In this way, the two parties can move towards a stronger relationship that will help to improve compliance, close the VAT gap, and help ensure that revenue agencies can deliver public service for the future.
Reaching new levels of trust
A mutually beneficial approach
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Accenture, its logo, and High Performance Delivered are trademarks of Accenture. 11-11099 /15-2258
Contact usChristopher GrayGlobal Managing Director, Accenture Intelligent Processing Business [email protected]
David ReganGlobal Managing Director – Health & Public Service, Revenue Industry [email protected]
Connect with us to learn more on delivering public service for the future on Twitter and Linkedin @AccenturePubSvc
References1. Update report to the study to quantify and analyse the VAT gap in the EU-27 member states, Center for Social and Economic Research, 2014http://www.case-research.eu/sites/default/files/publications/CNR_120.pdf
2. UK card spend tops £0.5 trillion for first time as consumers switch from cash, The UK Cards Association, June 2014http://www.theukcardsassociation.org.uk/news/UKCardPayments2014.asp
3. European Commission Tax Forum 2013, Report from the Autoridade Tributaria e Aduaneira “Using VAT as a fiscal consolidation tool in Portugal”http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/conferences/taxforum2013/pereira.pdf
About the researchThe Accenture Global VAT-GST study surveyed 650 small and medium-sized enterprise (SME) employees and large-enterprise employees in February 2015. The online survey was executed by PSB research in seven countries: United Kingdom, Germany, Italy, France, Netherlands, Australia, and Spain. It got the views of 100 decision makers directly involved with tax compliance policy, including roles such as: Presidents, Chief Executive Officers, Chief Operations Officers, Chief Financial Officers, Directors of Accounting, and Managers in each country, except in the Netherlands where the sample was 50. Respondents were surveyed in their local languages
About Delivering Public Service for the FutureWhat does it take to deliver public service for the future? Public service leaders must embrace four structural shifts—advancing toward personalised services, insight-driven operations, a public entrepreneurship mindset and a cross-agency commitment to mission productivity. By making these shifts, leaders can support flourishing societies, safe, secure nations and economic vitality for taxpayers in a digital world— delivering public service for the future.
About AccentureAccenture is a global management consulting, technology services and outsourcing company, with more than 323,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com.
