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Chasing taxes

TAX evasion costs Slovakia billions of euros, and the government believes combating tax fraud and improving tax collection will increase the state budget, which has been hit hard by the unfavourable economic situation. Last year the state launched a three-phase action plan in its fight against tax evasion, whose measures have been introduced gradually.

TAX evasion costs Slovakia billions of euros, and the government believes combating tax fraud and improving tax collection will increase the state budget, which has been hit hard by the unfavourable economic situation. Last year the state launched a three-phase action plan in its fight against tax evasion, whose measures have been introduced gradually.

One of the latest of such measures, agreed upon by new general prosecutor Jozef Čižnár, Interior Minister Robert Kaliňák and Police President Tibor Gašpar, involves the creation of a specialised unit of prosecutors, police officers and Financial Police workers, called the super-commando. Within this unit, eight prosecutors specialising in tax evasion will handle new and old tax evasion cases.

Moreover, specialised police units will be created at the regional level, which will also handle tax fraud, the Pravda daily wrote. For now, such units operate only in Bratislava and Košice. This should result in faster proceedings with fewer errors and more serious culprits. Details about the unit’s operation will be agreed upon later.

Čižnár lists the fight against tax evasion as one of the top priorities in his position as general prosecutor. He considers it unacceptable that the state is losing hundreds of millions of euros and that those who commit tax fraud often go unpunished.

The number of criminal offences linked with tax fraud in Slovakia has increased.

While in 2010 the police registered 2,702 criminal offences that qualified as tax evasion, and the state lost €148 million as a result of tax fraud, in 2012 the police investigated criminal tax offences in 3,679 cases and losses were calculated at €161 million. Based on police statistics, tax fraud cases make up almost one fifth of total criminal offences, Pravda wrote.

The Financial Policy Institute (IFP), part of the Finance Ministry, has estimated that VAT evasion in 2011 totalled €2.3 billion.

One common VAT fraud scheme involves so-called carousel fraud, in which fraudsters import goods to an EU country VAT-free, and then charge VAT to the buyers. The sellers then disappear without paying the tax owed to the authorities, while the buyers claim the VAT back from their overall taxable income, thus creating a loss for the state. It is called carousel fraud because there are usually a circle of companies involved, each liable for VAT which goes unpaid, with the final buyer reclaiming the VAT from the tax authorities before disappearing.

Vladimír Baláž, the economist from the Institute for Forecasting for the Slovak Academy of Sciences, agrees that tax fraud is a serious problem.

“When we realise that, for example, we allocate €4 billion to health care annually, it is a serious problem,” Baláž told Slovak Radio. “The government is adopting several measures to improve tax collection, either through the electronic VAT record or heavier sanctions and the creation of various investigative and criminal institutions, but we will be able to assess the impact of these measures only after these start to really function, which will be probably in 2014.”

Peter Šufliarsky, the deputy general prosecutor, admits that currently investigation and prosecution of tax evasion cases is slow, bringing results only after several years. He points out that uncovering tax crimes is demanding for prosecutors as they need deep knowledge of accounting and taxation, and they must cooperate with the financial administration, auditors, consultants and others.

Daniel Lipšic, former interior minister and current chairman of the NOVA movement, is sceptical about the effects of the super-commando. He recalled the launch of the specialised tax unit, called tax cobra, one year ago, whose aim is to uncover tax fraud.

“Its launch was also announced with great pomp and the fact is that evasions of value added tax were, last year, higher than one year ago,” Lipšic told Slovak Radio, adding that the super-commando would only go after small culprits and that large VAT fraudsters would escape.

Cobra uncovered tax fraud totalling €60 million during its first six months of operation. One of the cases involved a carousel scheme of 24 pork-trading companies, which cheated Slovakia out of at least €6.7 million in unpaid VAT over the last five years.

Lottery

Another measure to boost collection of VAT, which is slated for introduction soon, is the receipt lottery, wherein the Finance Ministry wants to motivate people to actively ask for and claim receipts for their purchases when shopping. Details will be announced later in August, and bills issued after September 1 will be eligible entering into a lottery and winning thousands of euros. The first drawing is planned for mid September, and it will take place twice per month thereafter.
The state estimates that VAT evasion via cash registers alone amounts to €150 million annually.

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