VAT Control Statement as a Solution to Tax Evasion in the Czech Republic

In this paper, I review and assess what we have learned about what motivates individuals to pay -or to not pay -their legally due tax liabilities. I focus on three specific questions. First, what does theory say about what motivates tax compliance? Second, what does the evidence show? Third, how can government use these insights to improve compliance? I conclude with some suggestionsand some predictions -for future research. 356 ALM measure of the individual's constant relative risk aversion. Using the definitions of I C and I N in equations (1) and (2), the expected utility maximization generated by the solution to equation (3) can be solved for the optimum amount of reported income R*. 9 Now suppose that R* is calculated for specific, realistic values of the various parameters. For example, if t = 0.4, f = 2, p = 0.02 and e = 1, then the individual will optimally report no income. Very large values for relative risk aversion are required to generate compliance consistent with actual country experience. When e = 3, reported income is only 14% of true income; when e = 5, it is still only 44%; when e = 10, it is 71%; and e must exceed 30 for compliance to exceed 90%. Even if the probability of detection is as (unrealistically) high as 30% (with t = 0.4 and f = 2), relative risk aversion must exceed 7 to generate compliance over 90%. However, existing field evidence on the coefficient of relative risk aversion using a variety of approaches suggests that e ranges between 1 and 2, and may even be as low as 0 (Friend and Blume, 1975;Hansen and Singleton, 1983;Hall, 1988;Chetty, 2006;Gandelman and Hernandez-Murillo, 2013). Risk aversion must be abnormally large for behaviour to be even roughly comparable to actual observed choices, even in many developing countries with low levels of compliance.Admittedly, there are reasons why this simplistic analysis somewhat overstates the problem with the standard expected utility approach. 10 Consider the United States as an example. First, a standard feature of many individual income tax systems is that a third party (e.g. the individual's employer) reports the relevant part of an individual's taxable income to the tax authority (and often also withholds income taxes on this reported taxable income). This third-party information increases significantly the chances that an individual who underreports income on a filed return will be detected, especially in its combination with employer source-withholding. 11 Second, the 'official' IRS audit rate somewhat understates 'actual' IRS audit policy. In fact, the IRS conducts a range of audits, and for many types of audits, the actual rates are quite high. Third and relatedly, while overall audit rates are quite low, among certain income and occupation classes, they are more frequent. Fourth, the IRS conducts a wide range of audit-type activities, including line matching and requests for information, and these activities are much more frequent. 12 Finally, it is individual perceptions of audit rates that influence behaviour, rather than...

show abstract

“…See Keen and Smith (), Keen (), Keen and Lockwood () and Semerad and Bartunkova () for some recent examples.…”

Section: Type Of Income Net Misreporting Percentage (%) Percentage Ofmentioning

confidence: 99%

What Motivates Tax Compliance?

Alm

2018

Journal of Economic Surveys

286

223

View full text Add to dashboard Cite

show abstract

“…The attention of refor mers is focused on improving VAT administration and improving its transparency, in particular, in the mechanisms of reimbursement. Among modern European experts, the problem of VAT and the improvement of its administration are researched by C. Authtman (2015) [2], L. Barbone (2012) [3], L. Bartunkova (2016) [20], R. Bird (2012) [3], C. Beilshmidt (2015) [2], T. Grills (2010) [8], J. Dronner (2015) [2], P. Dylewskiy (2017) [11], W. Hellerstein (2010) [8], M. Keen (2011) [9], M. Lamensch (2017) [12], B. Lockwood (2010) [10], U. Lomas (2017) [10], M. Mattig (2015) [2], B.…”

Section: Brief Literature Reviewmentioning

confidence: 99%

“…Lomas (2017) [10], M. Mattig (2015) [2], B. Mesdom (2015) [16], P. Semerad (2016) [20], K. Spies (2017) [23] and J. Vazguez-Caro (2012) [3]. Special attention is devoted to the study of the efficiency of interest rates of VAT, in particular by H. Celeby (2017) [19], S. Hodzic (2017) [19], H. Simovic and M. Deskar-Skrbic (2016) [22], and P. Sopek, (2012) [24], who studied the effectiveness of interest rates in individual EU countries and Turkey in the period up to and including 2013.…”

Section: Brief Literature Reviewmentioning

confidence: 99%

Value added tax: effectiveness and legal regulation in Ukraine and the European Union

Kovova¹,

Malyshkin²,

Vicen³

et al. 2018

EA-XXI

View full text Add to dashboard Cite

Introduction. The accounting and tax legislation of Ukraine is in the process of its approximation to the requirements of the European Union. This is especially true for taxes accompanying the movement of goods and services in the context of cooperation between countries, with value added tax (VAT) being the main of these taxes is. Purpose. The purpose of the paper is to identify both common and distinctive features of the Ukrainian tax legislation on VAT with regard to the European requirements according to the current Association Agreement, assess the effectiveness of VAT rates and identify general trends in the dynamics of structural fractions of VAT in GDP and VAT rates. Methods. We applied the methods of scientific analysis and comparison, induction, and a systematic approach. Also, we used the expert judgment method to determine the likelihood of positive and negative consequences of lowering the VAT rate. Results. The study investigates the formation of legislation on administration of VAT in both the EU and Ukraine. The research determines the law basic eligibility criteria within the definition of: taxpayers, objects of taxation, tax base, tax accounting rules, tax primary documents and reports, and methods of administration. The article compares the basic details of the primary documents as well as their common and distinctive features. In particular, we compared primary and summary documents registration operations for displaying the electronic VAT administration system as well as general and reduced VAT rates in Ukraine and the EU. The authors of the article propose the main steps towards the convergence of electronic forms of primary documents. We conducted an analysis of the efficiency of VAT rates in both the EU and Ukraine and identified the factors that impact the change in the relevant indicators. The conducted research offers an overview of modern European trends in terms of improving VAT administration. Discussion. There is no absolutely effective VAT administration scheme. Therefore, the issue remains open and controversial. The study of the effectiveness of VAT rates in the EU and Ukraine has shown that, there was a decline in the efficiency in half of the EU countries during the 2014-2017 period. It has been estimated that a reduction of the joint European rate of VAT up to 15%, under certain specified conditions, would increase the efficiency of VAT rates in all EU countries and lead to other positive effects.

show abstract

“…This type of reporting allows a cross-check of suppliers' and customers' invoices to disclose the so-called missing trader fraud, or the related carousel fraud, or the supply chain fraud. For more information about this tool, see [53]. The intervention effect may have also been co-produced by the RCM applied to copper in the Czech Republic since 1 April 2015.…”

Section: Resultsmentioning

confidence: 99%

Is the Value Added Tax System Sustainable? The Case of the Czech and Slovak Republics

Krzikallová

Tošenovský

2020

Sustainability

View full text Add to dashboard Cite

The value added tax is an important part of revenues of the European Union and its Member States. The aim of the paper is to statistically analyse the extent of positive impact of selected legislative measures introduced in the fight against tax evasion and discuss subsequently the sustainability of the current value added tax system in the European context. The analysis was conducted for the Czech and Slovak Republics, two traditionally strong trading partners, and for an important commodity, copper. In the analysis, regression methods applied to official time series data on copper export from the Czech Republic to Slovakia were employed together with appropriate statistical tests to detect potential significance of the new legislative tools, the value added tax control statement and reverse charge mechanism. Moreover, the study considers fundamental economic factors that affect foreign trade in parallel. Based on the analysis, there is sound evidence that the major historical turnaround experienced by the time series took place due to the then forthcoming legislative measures that were to restrain the possibility of carousel frauds. The results confirm the positive impact of the measures and also suggest the necessity of more systematic changes in the tax system.

show abstract

VAT Control Statement as a Solution to Tax Evasion in the Czech Republic

Cited by 12 publications

References 1 publication

What Motivates Tax Compliance?

What Motivates Tax Compliance?

Value added tax: effectiveness and legal regulation in Ukraine and the European Union

Is the Value Added Tax System Sustainable? The Case of the Czech and Slovak Republics

Contact Info

Product

Resources

About