The Commission accused of tolerating corruption and fraud in taxation

Algirdas Šemeta, Member of the European Commission in charge of Taxation and Customs Union, Audit and Anti-Fraud, gave a press conference yesterday on a new study confirming that billions are lost in VAT evasion and fraud, thus creating a gap between actual and potential tax income for member states. (EC Audiovisual Services).

Algirdas Šemeta, Member of the European Commission in charge of Taxation and Customs Union, Audit and Anti-Fraud, gave a press conference yesterday on a new study confirming that billions are lost in VAT evasion and fraud, thus creating a gap between actual and potential tax income for member states. (EC Audiovisual Services).

The European Commission published yesterday a study on Value Added Tax (VAT) evasion and fraud in the 27 EU member states, estimating the lost state incomes from this source at €193 billion only in one year, 2011. This is the difference between the actuall and the potential receipts from VAT, that is the VAT GAP. The amount is impressive and a first reaction could be that if it had been collected even partially, it could have solved the over indebtedness and the fiscal deficit problems in most EU countries. This is particularly true in some crisis stricken member states like Greece and Spain. In the first of those two the VAT gap between actual and potential collection was in 2011 around €10 billion and in the second case €15bn.

As the Commission acknowledges however not all the gap can be cashed in. The relevant Press release states, “While non-compliance is certainly an important contributor to this revenue shortfall, the VAT GAP is not only due to fraud. Unpaid VAT also results from bankruptcies and insolvencies, statistical errors, delayed payments and legal avoidance, amongst other things”.

The South European patient

In the case of Greece this gap was 39% in 2011, the largest in Eurozone and the second largest in the EU after Romania’s 48%. In Italy the corresponding percentage was 27%, in Portugal 16% and in Spain 21%. It is obvious that the quality of the tax and customs administration and the political will to extinguish corruption and fraud play a vital role in confronting VAT losses. The table published here is very informative about all that. The large differences of VAT gaps between the EU countries tell very eloquently the story why this happens and which countries still tolerate a corrupt and quite incapable systems.

Successive Greek governments even during the last five crisis years showed quite a pathetic if not tolerant attitude to this problem. The country could have avoided the severe austerity and the concomitant economic destruction and social and political disintegration, if only a part of the VAT gap would have been collected by a traditionally corrupt and incompetent tax and customs administration. Still today the entire Greek tax legislation is so contradictory and chaotic that nurtures corruption and tax evasion. At this point must be noted that Antonis Samaras, currently Prime Minister of Greece, has served as Minister of Finance of his country back in the 1990s, without changing anything in the tax and customs administration.

10000000000003ED00000368BBDEDCCA

Pseudo-exports are a classic VAT fraud trick giving right to handsome VAT refunds. It’s not only VAT losses that haunt the European tax collection though. Fraud with special taxation on fuels and tobacco constitute also a large part of government income losses in countries with corrupt and incompetent tax and customs administrations.

What if

An additional problem with taxation in general is that a large part of legal but tax avoiding economic activities in construction, the agricultural sector, the SMEs and the professions are counting for their survival on tax evasion. If for example is was possible in a magical way to establish the Swedish tax and custom services in Greece, a large part of the above mentioned activities would go bust and disappear within days or weeks.

By the way, according to the study presented by the Commission, the Swedish VAT losses were only 2% in 2011, a minimal gap that can be attributed even to statistical errors. This country’s paradigm, along with Malta and to a lesser degree of Netherlands, Ireland, Denmark and Slovenia prove that it is possible to effectively arrest tax evasion and fraud on the condition that the political will is there.

Diluted medicines

In trying to remedy the system the Commission says that the European “Quick Reaction Mechanism, adopted in July 2013, will allow Member States to react much more swiftly and effectively to sudden, large-scale cases of VAT fraud. Eurofisc, which was launched in 2010, also facilitates stronger cooperation and coordination between Member States in combating organised VAT fraud”. Those mechanisms however can deliver results only if the tax and custom administrations are willing, able and compelled by simple and clear rules to enforce the correct practices. Unfortunately in many countries it’s not like that and the environment in which they operate tolerates, if not encourages, fraud and corruption.

The Commission must denounce them

Knowing all that, the Commission finally proposes that “Member States need to reform their national tax systems in a way that facilitates compliance, deters evasion and avoidance, and improves the efficiency of tax collection”. This is not however an encouragement addressed only yesterday. For years the Commission services try to convince Greece, Italy and Spain to do all that. Not to say anything about Romania, the Czech Republic, Hungary, Latvia, Lithuania and Slovakia.

In all those countries the large VAT gaps cannot be attributed only to errors and incompetence but have to be ascribed also to the very structure of the tax and customs services and the lack of political will to change the system. The stakes are huge and go up to billions in countries with large ‘holes’. The Commission has to stop tolerating this practice and denounce the countries and the politicians who either don’t care or encourage those catastrophic practices.

In any case this study gives us a good base to estimate the dimensions of corruption and the degree of tolerance that the political elites in some countries show to tax evasion and fraud. The Commission by not telling the whole truth about all that is actually susceptible in sharing the accusation of tolerating corruption and fraud in tax and customs administrations of certain member states.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

The Parliament accuses core EU countries of exploiting their dominant political position

Italy’s dilemma after Merkel-Hollande agreed loose banking union

Do the giant banks ‘tell’ Britain to choose a good soft Brexit and ‘remain’ or else…?

Shenzhen just made all its buses electric, and taxis are next

Lifting the lid on policy decisions across Africa

G20 LIVE: G20 Leaders’ Communiqué Antalya Summit, 15-16 November 2015

New technologies, artificial intelligence aid fight against global terrorism

Baku forum to push back against ‘rise of hate’ with strong call for cultural and religious tolerance, says UN official

EU prolongs economic sanctions on Russia by six months

Statement by Cecilia Malmström, Member of the EC in charge of Trade, on the successful conclusion of the final discussions on the EU-Japan Economic Partnership Agreement (EPA) – Brussels, 08 Dec 2017. (Copyright: European Union; Source: EC - Audiovisual Service; Photo: Georges Boulougouris)

The EU and Japan seal free trade pact that will cover 30% of global GDP

An enlightened response to COVID-19 can avert the climate emergency

Why schools should teach the curriculum of the future, not the past

Victim-centred laws ‘paramount’ to combat online sexual abuse against children

New Disability Inclusion Strategy is ‘transformative change we need’, says Guterres

Europeans show record support for the euro

Revolutionary technologies will drive African prosperity – this is why

Trump’s blasting win causes uncertainty and turbulence to the global financial markets

Who is first (and last) in the race to build a workforce fit for the future?

Eurozone: Disinflation engulfs the industrial goods sector

EU: Centralised economic governance and bank supervision may lead to new crisis

Youth policy in Europe not delivering for young people

UN agriculture agency chief calls on world’s mayors to make ‘global commitments local realities’

This UK footballer just won free school meals for kids in the summer holidays

Amsterdam has a bubble barrier to catch canal plastic

The climate and COVID-19: a convergence of crises

World Television Day celebrates an integral part of modern life

State aid: Commission expands Temporary Framework to further support micro, small and start-up companies and incentivise private investments

UN condemns deadly attack against G5 Sahel force headquarters in Mali

LGBTQI+ and medicine

Impact investment favours expats over African entrepreneurs. Here’s how to fix that

5 steps businesses can take to protect air quality after COVID-19

EU-China trade: closer ties as US-China trade battle brews

We should treat data as a natural resource. Here’s why

Music is a vital urban resource. How do we plan for it?

Does the EU want GMOs and meat with hormones from the US?

Thursday’s Daily Brief: Poverty report reveals ‘vast inequalities’, measles compounds DRC Ebola woes, Guterres visits Mozambique, Bangladesh update, freedom of expression online

‘The welfare of the Libyan people’ the UN’s sole agenda for the country, says Guterres in Tripoli

How we can work together in the fight against NCDs

Is deflation a real danger for Eurozone?

COVID-19: Managing Our Mental Health

Nigeria: Armed conflict continues to uproot thousands, driving up humanitarian need

The Brussels bureaucracy blocks the Youth Guarantee scheme

A Sting Exclusive, the European Commissioner for Energy Günther Oettinger writes for the Sting on “EU Industry: a major energizer”

More women than ever are working in Hollywood, but men still dominate key roles

EU@UNGA 74: Working towards a more peaceful, secure and prosperous world

Could switching between summer and winter time end in 2021?

Gains by Abyei interim force can help advance resolution of border issues between Sudan and South Sudan, UN peacekeeping chief says

Europe united in not supporting a US attack on Syria

From the Field: Women push for peace

Population in crisis hit EU countries will suffer for decades

Technological innovation can bolster trust and security at international borders. Here’s how

UN chief highlights action across borders for ‘stable and prosperous Eurasia’

Youth2030: UN chief launches bold new strategy for young people ‘to lead’

TTIP wins first crucial EU test: MEPs give in to the trade agreement

Cyclone Idai: UNICEF warns of ‘race against time’ to protect children, prevent spread of disease in flood-ravaged Mozambique

‘Two pack’ austerity package in force but with less vigor

Amid COVID-19 constraints, UN women’s commission meets to push gender equality forward

A win-win strategy for private equity deals

UNICEF delivers medical supplies to Gaza in wake of deadly protests

Eurozone very close to a sustainable growth path

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s