The Bank of Greece proposes simplification of the tax legislation and the tax system, digitization of procedures and payments, but also closer cooperation of the tax authorities of the EU member states for the detection of fraud in cross-border transactions, in order to reduce tax evasion on the VAT front. In Greece, the VAT gap (including tax losses), although in recent years has been declining, has long been one of the largest in the European Union. In 2019 it was almost 2.5 times higher than the EU average (25.8% vs. 10.9%), ie of the 3 euros that had to be collected, almost 1 was lost.
According to the BoG, the large loss of VAT revenue is due to the multiplicity and complexity of tax legislation, with frequent changes and multiple rates that create administrative difficulties and motivate taxpayers for poor compliance while at the same time very high tax rates increase movement in the undeclared economy. “The problem of tax evasion is large and timeless. It is associated with low levels of tax compliance and efficiency of the tax administration. The phenomenon is particularly strong in the field of VAT, although the widespread use of electronic means of payment after 2015 limited it and boosted tax revenues. However, it did not manage to eliminate it “, it is noted in a special section of the BoG report.
To tackle tax evasion, the central bank is proposing to generalize the use of electronic means of payment in all areas of economic activity, to link cash registers with the tax administration and to introduce an automatic tax refund system. According to the central bank, the reduction of tax evasion requires the simplification of tax legislation and the tax system in order to reduce administrative and compliance costs, the digitization of procedures and payments, as well as closer cooperation between the tax authorities of its Member States to facilitate EU detection of cross-border fraud
In particular, in order to reduce this “bleeding” in VAT receipts, the BoG notes the following:
1. The generalization of the use of electronic means of payment in all areas of economic activity, in combination with the completion of the interconnection of cash registers with the tax administration, expands the tax base and contributes to the reduction of the VAT gap.
2. The adoption of the automatic tax refund procedure, the guarantee of transparency during the tax audit and the speed of its processing are the basic preconditions for the improvement of compliance.
3. Limiting the differentiation of tax rates between geographical areas and between categories of goods and services (excluding essentials) on the one hand reduces compliance costs and on the other hand reduces distortions in the consumption of specific goods and services and promotes healthy competition.
4. The digital transformation of the tax administration with the application of new technologies, such as artificial intelligence, big data and blockchain technology, simplifies and speeds up the tax filing process and greatly reduces compliance costs.
5. The application of advanced tax software, real-time reporting systems and data analytics increases the capabilities of the tax administration. A more efficient tax system reduces the time required to meet tax obligations, ie the hours required to prepare and file tax returns and pay the tax, as well as the number of payments within a year, and contributes to tax compliance of citizens. At the same time, it improves the effectiveness of audits while improving the skills of the tax administration’s human resources. In this context, the recently imposed obligation to keep electronic tax books and invoices through the MyDATA application of independent state proceeds authority AADE is included. This digitized service provides the tax administration with the possibility of automatic control and cross-checking of invoices, as it allows the recording of VAT on a daily basis and in real time. In addition, it reduces taxpayer compliance costs by relieving them of bureaucratic procedures such as submitting consolidated statements. The process of completing documents, calculating tax and refund, as well as compliance during the tax audit are the two most important interactions between taxpayers and the tax authority, which determine the degree of efficiency and transparency of the tax system. The complexity of the process, the long waiting time for the tax return, the lack of transparency during the audit and the long delay in extracting the audit result are factors that have a negative impact.
6. Strengthening administrative cooperation in the field of VAT between the tax authorities of the EU Member States helps to identify companies that commit fraud in cross-border transactions. Closer cooperation in the collection and exchange of payment data helps to tackle cross-border retail fraud and the import of goods through e-commerce.