This September, the Tax Administration of Finland (Vero Skatt) carried out an action to check compliance of taxi drivers in the context of tax obligations. The action included 850 taxpayers and the potential loss (non-recording cash payment, unaccounted revenue, undeclared pay) was uncovered in the amount of 16 million euros. This is a large amount for this sector of taxpayers and for a relatively short period and relatively small sample.
A few years ago, this sector (taxi industry) was liberalized quite a bit with goal to improve the quality of services due to the increased competition. Although a large number of taxi drivers work in accordance with the regulations, audit showed a significant presence of indiscipline, which, in addition to deficiencies in reporting traffic and taxes, also has problems in reporting and payroll, i.e. with illegal work.
That is why it was proposed to consider the introduction of one or two measures.
The first proposed measure is to drastically increase the penalties for license abuse. This measure can be effected immediately.
Second proposed measure is meant to secure long term sustainability with introduction of an instrument for monitoring mandatory invoice issuing for each transport. This measure requires more complex approach with introduction of fiscalization.
The Revenue Quebec (RQ) is often cited as an outstanding example of successful fiscalization. In 2009, Revenue Quebec fiscalized only the restaurant sector. As a “closed” and proprietary model, the Quebec model is very expensive and difficult to adapt to the general population of taxpayers. RQ, after 12 years, developed a new, “open” model of fiscalization and imposed it on the transportation (taxi) industry, onboarded to a monitoring system after restaurants.
Since 2014, Finland has had a law obliging taxpayers to issue an invoice to the user for each transaction. This obligation was considered sufficient. But this is insufficient and a large number of countries in Europe, and tax administrators have realised that the obligation to issue invoices must be supplemented with hardware and software solutions which can reduce the scope of manipulation with invoices. Thus, over time, several models of fiscalization emerged.
In 2016 Vero Skatt has understood that the law from 2014 needs to be updated. In this sense, a working group was established, which had the task of studying existing fiscalization solutions in the world (OECD countries mostly) and to propose model that would be implemented in Finland. After considering several current models, the study (“12.06.2018 – Yli 100 miljoonan verotuotto online-kassajärjestelmillä – soveltuvuutta Suomeen selvitetty”) proposed an “buffered online” model, which implies the digital signing of each invoice by the tax administration. Buffering means that sales transactions are stored in the buffers while network errors occur and transferred to the Tax Administration when the network is restored. Activities related to this study have been stopped due to Covid-19, but it is obvious after this report that they will have to continue.
The above-mentioned study of the Vero Skatt working group predicted an increase in VAT revenue by 100 million euros if fiscalization is implemented, more precisely over 140 million euros. The enforcement conducted this September, on a small sample of taxpayers (850 of 170000) indicates that the increase in VAT would be much higher than predicted. The cited study predicted quite high costs of introducing fiscalization, around 100 million Euros. The implementation of new technologies and the fiscalization costs in other countries could significantly reduce the estimated costs.
The inclusion of a larger taxpayer population from other industries would bring a much needed surplus to the state budget from VAT collection alone.
Finland should return to its original study, supplement it with new experiences to avoid paving the cow paths.