Thursday, June 24, 2010

The future of VAT – Automatically Real Time

We all know that today’s VAT reporting and payment process is mildly speaking cumbersome for 24 million enterprises in EU – eating into their global competitiveness. We also know that it is a very costly operation for the tax authorities (waste of tax payers’ money) and that it is leaking badly and seems to be an open innovation for fraud (100 billions  lost every year according to EU study).

The future of VAT can and must be quite different. As the migration to the also otherwise so-sense-making e-invoicing is progressing fast it is possible to deploy SPLIT-payments – meaning that when the buyer is paying the invoice the VAT-part will be directed to tax, the net amount to the seller (automatically followed by possible refund). Easy as that.

How big a part will this be in the “Cutting enterprise administrative costs in half” program? How much less tax planning? How big will the savings be in the public sector? How much more tax can be justly collected – other taxes lowered? How much less crime?

Substantial must be an understatement. Think of it. In the enterprise today: massive work in collecting, adding up, remembering, paying, paying too early > reclaim, paying too late > penalties, VAT auditing etc etc. Tomorrow: sellers and buyers alike do not have to even know about VAT – it is all automated in the payment process.

There must be very good reasons for not having this as a top priority already now.


侑美 said...
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Crinus said...

Indeed, good idea. Entering the business as a sole proprietorship in Finland in 2006, one of the first problems for me was understanding what the heck is VAT anyway. I admire good bookkeepers but also keep an eye towards the future; how much of their work will be automated, when the systems get going. But I always remind myself of the luddites in 1700s; I think bookkeepers will be happy to get rid of too much VAT fiddling too. It can't be so interesting a task in their daily chores.

Recently, my friend asked about it too; now that Finland changes some VAT classes by 1 percentage unit. He works in engineering and basically doesn't have anything to do with billing, but we shared a work in the past doing e-invoice conversions, so we strike a conversation about economy once in a while.

It causes extra manual work, and probably a dozen times as much confusion and questions. If it were automated in the process, we'd get to focus so much more on real work.

buruburu said...

Do you know of any country that has implemented this? Real time VAT reporting to ministry of finance or some other government organization?