Poland struggles to combat VAT fraudsters

Supreme Audit Office (NIK) conducted a study of how Polish fiscal control authorities tackle tax fraud. The results? Ministry of Finance has a lot to work on.

NIK took a look into the activities the Ministry of Finance and is subordinates took upon to counteract VAT fraud and tax avoidance and to retrieve the money that the state loses as a result.

The period under inspection was the year 2014 and the first half of 2015. NIK quizzed five fiscal control offices and six tax offices from five voivodships. The inspectors checked how the institutions targeted suspicious taxpayers, how their inquiries looked like and what their effects were.

Although the fiscal authorities were able to correctly identify companies involved in suspicious activity, execution of funds was of very little effect. Only 1.3% of the money due was retrieved to the state budget. The authorities were not able to identify the true organizers of the tax scams.

Fictitious VAT transactions cause the state budget to lose billions of zlotys every year. For the state, VAT tax is the most important source of income. Tax frauds are carried out by organized crime groups.

NIK stated that current legal regulations for combating fiscal offences are inadequate and ineffective. Ministry of Finance quickly needs to introduce new measures against organized tax crime. Creation of a specialized unit is much advised.

Among the suggested solutions are also introduction of central register of invoices, public register of business bank accounts, stricter requirements for quarterly tax returns, split tax payments and lowering the limit of permissible cash transactions.

Ministry of Finance has already identified the VAT gap as their core challenge. Minister Piotr Szałamacha announced he wants to lower the gap to 15% within the next three years.

From 01 June 2016 the biggest taxpayers will be obliged to submit Unified Control Files that will allow tax inspections to be quicker and easier to carry out. There are plans to create Central Register of Invoices and National Fiscal Administration. The former may be opened next year.

Tax avoidance came to the radar of the EU authorities. European Commission recently showed concern over the growing scope of VAT fraud in the EU. A reform of the VAT system is much needed. Current regulations were established in 1993 and leave a lot to be desired.