Great, so in theory, VAT, which you pay on every product and service, is actually possible to cheat. This is what causes the VAT gap, which represents a real loss to the state budget - these losses are in the billions of euros, dollars, pounds sterling or zlotys.EUROS POUNDS DOLLARS
Take your pick.
One of the most effective VAT theft methods is the so called VAT carousel.
In the EU, over 34 thousand euros are collected every second in VAT.
This is simpler than it looks. Imagine a carousel, where successive customers get on, and they all pass each other money, until eventually one of the riders gets off and disappears with the money.
The passengers are a chain of fake firms set up by the crooks, committing fake transactions. At some point in the chain, one of the companies folds, and with it, the VAT which has been paid by the customers. Among other people, your money!
Billions of euros/pounds sterling/dollars is a load of money. How many schools, roads, hospitals could we build for that? High rent prices, problems in the health services? You can thank VAT thieves for those. Terrorism threat? Increased criminality? VAT scammers have their role in that as well.
A certain politician from a certain country, which we will come to soon, said that the production of fraudulent invoices is a better line of business than drug dealing.
Between 2010 and 2017, VAT revenue in the EU stood at 7,8 billion EUR. In those same years, losses linked to VAT scams and theft stood at 1.2 billion EUR. Lots of money, eh?
It’s not a dream, sunshine. That’s the brutal reality of VAT fraud which affects each and every one of us.
Can we do it? Yes, we can. Is it hard? Yes, it is. But it’s certainly worth the effort.
How did they do it in Poland?
Today, Poland is a country with a strong and stable economy.
And the scale of VAT fraud and theft is below the EU average.
Every year, 420 million EUR from VAT related scams is used to finance terrorism. According to Italian investigators, in 2015 alone, there were links between a billion EUR VAT fraud and the financing of Islamic terrorism in Pakistan.
But just a few years ago it was… bad.
Between 2008 and 2015, Poland lost some 260 billion PLN due to VAT fraud, scam and theft.
The first step was creating what could be described as an internal Microsoft within the Ministry of Finance. They hired the best tax advisors and experts, lawyers, analysts and programmers. Then came the implementation of Big Data to fight the criminals. Additionally, the Single Audit File was introduced: it collects data from entrepreneurs and sends it to analysts and programmers who construed algorithms to pinpoint potential fraud.
But none of this is unique to Poland.
Having already a solid foundation and intellectual background necessary to wage war with VAT carousels, Poland was the first country in Europe, to provide banks with programs which could identify empty invoices and inform the revenue services about them, without compromising the data of honest clients. This, combined with the analytical process turned out to be the most effective way of fighting VAT crime.
Now Poland is a leader as regards minimising the VAT gap, which currently stands below the European average in Poland.
If Poland could do it, other countries can do it too!
At a Hackathon, the most talented computer experts brainstormed together, and came up with algorithms which allowed the tracking of products had tried to shift on the Polish equivalent of eBay after their VAT theft.
The Polish Ministry of Finance sends a text to entrepreneurs, if there is an issue with their VAT invoice. And then, it monitors their reaction. ;) Just kidding! The aim of the text message is to support and protect the entrepreneur, and to help rectify normal, human errors, which aren’t the result of attempted fraud, but which also contribute to the VAT gap.
Poland was the first european country to implement Big Data solutions to analyse data from the STIR program.