In recent years government has pocketed just under 20 billion euros annually in Value Added Tax paid on goods and services. That figure may sound impressive, but it’s actually less that government should be earning from the consumption tax, says the Finnish Tax Administration. An ongoing investigation into the VAT income shortfall revealed that in 2010 up to 1.4 billion euros in VAT collected by businesses never made it into government coffers. Officers are probing the period 2008 - 2012.
Ari Mäkelä, head of risk management with the Finnish Tax Administration Vero, said according to international standards, a tax income deficit of 5 – 10 percent is considered to be acceptable.
Tax authorities are currently looking into the shortfall with the help of the International Monetary Fund. Once they complete their investigation, they’ll be looking to develop their operations to ensure that fewer tax revenues fall through the gap.
Tax man Mäkelä said this doesn’t mean that tax officers will go out on the hunt to collect taxes owed retroactively. He noted the shortfall data are based on national economic indicators and do not show tax data for individual businesses.
Tracking the biggest offenders
Still, tax collectors want to find out which business sectors represent the biggest offenders when it comes to failing to hand over to government the VAT they collect. The shadow of the so-called grey economy (or unregulated business activity) looms large in this appraisal. Sectors where unregistered businesses tend to operate include the restaurant and construction fields.
The private sector business lobby the Federation of Finnish Enterprises said while the grey economy could explain the tax payment shortfall, another reason could simply be insolvency.
Federation Economist Petri Malinen said that the current convoluted tax system means that in spite of their best efforts, some private sector companies find it difficult to comply with the law. The tax administration also agrees that in many cases failing to pay over VAT receipts isn't done deliberately.
The tax office says while they are trying to determine why companies aren’t handing over the VAT they collect from consumers, it may well be impossible to find out precisely how much tax income they’re missing out on.