A policy analysis and recommendation for combating against the VAT fraud problem in Turkey
Başlık çevirisi mevcut değil.
- Tez No: 718296
- Danışmanlar: PROF. GANGADHAR PRASAD SHUKLA, DOÇ. DR. SANDEEP BHATTACHARYA
- Tez Türü: Yüksek Lisans
- Konular: Ekonomi, Economics
- Anahtar Kelimeler: Belirtilmemiş.
- Yıl: 2019
- Dil: İngilizce
- Üniversite: Duke University
- Enstitü: Yurtdışı Enstitü
- Ana Bilim Dalı: Belirtilmemiş.
- Bilim Dalı: Belirtilmemiş.
- Sayfa Sayısı: 69
Özet
Since its first introduction, Value Added Tax has been one of the most significant revenue sources for Turkey's public finance. Turkey's VAT revenue collection performance, however, is about 40%, and this means a relatively higher VAT gap compared to its European neighbors. Besides, if we consider the deferred VATs and adjust the rate, Turkey's performance can only capture less than 40 percent of its potential VAT base. Looking at the tax audit statistics, we see that the prevalence of fictitious invoice in the Turkish VAT system is the prominent reason for this low performance. It is not a new phenomenon, however. Issuing and using fictitious invoices has been a widespread and chronic problem of Turkey's tax system since the early 1990s. When we look at the root causes of the problem, we see that since the role of invoices in the credit method VAT offers tax and cash flow advantages to taxpayers, it creates significant incentivesfor fraudulent attacks. Another important reason is that the tax audit and penalty system is not sufficiently effective and deterrent to discourage taxpayers to use fictitious invoices. On the other hand, the problem has far-reaching impacts not only on tax revenues but also on other elements of the tax system. The first and most tangible effect is on tax revenues; VAT revenues as well as other tax revenues, primarily corporate income tax and personal income tax, decrease. The second effect is on taxpayers; the problem creates compliance cost increase and negative cash flow effect for bona fide taxpayers, because of additional filing requirements and delayed VAT refunds. The problem has adverse effects also on tax administration; it increases workload and administrative costs significantly. The deferred VAT, which is also a kind of natural result of the lack of confidence against input credit mechanism, has a high rate of stock, and this amount of stock is estimated to be more than 5% of Turkey's GDP. There has been an increasing pressure from business organizations on the government to get back these amounts as a refund since it creates a serious cash flow problem for compliant taxpayers. Although both former and current ministers have vowed to solve this problem, the budget-neutral solution of the problem creates a challenge for the Turkish Ministry of Finance and Treasury. To solve this intermingled problem, I am doing a qualitative assessment among current policies and two main alternative approaches in terms of five criteria; compliance cost, administrative cost, cash flow effect, tax revenue effect, and possible positive and negative side effects. ii Looking at the current policies in practice, we see that there are many legal regulations which target the problem, and these regulations are largely compliant with international practice. These regulations, however, have resulted in that Turkey has one of the most complex VAT systems in Europe. Furthermore, Turkey has increased its administrative capacity significantly by using ICT extensively via instant risk analysis based on cross-checking and increasing the number of its audit staff, especially in the last ten years. Even though Turkey has had a high success rate in detecting fraud, there has not been a significant improvement in VAT collection performance since the identification of fraudsters does not guarantee tax recovery. The first alternative approach to current policies is to upgrade the audit system. This alternative is based on the idea that identifying fraudsters more quickly by increasing transparency and data availability will reduce the number of fraudsters and fraudulent transactions in the system. There are two alternative methods under this approach; the Central VAT Monitoring Database Model and the VAT Data Warehouse Model. The Central VAT Monitoring Database Model requires taxpayers to use electronic invoices to a wide extent to do a real-time cross-checking of invoice information. The VAT Data Warehouse Model, however, demands more data from taxpayers, such as proof of payment and delivery in addition to invoice information. In addition, VAT data warehouses are maintained by taxpayers' themselves. The impact of these methods, however, will be limited since they do not automatically lead fraudulent taxpayers to change their behaviors. The second alternative approach is to make a radical change in the collection mechanism of the VAT, which is to adopt a split payment system in VAT collection. This alternative is based on the idea that the existing VAT systems were designed according to the old technology, and the current technology used in the credit card industry and inter-bank payment systems can provide a simple, reliable and cost-effective way to reduce fraud and lower administrative costs. There are two main alternative methods under this approach; Latin American VAT Withholding Method and Real-Time Securing Methods. While Latin American experience shows that VAT withholding responsibility can be extended to debit/credit card intermediaries, Real Time Securing Methods, which are RTVat, Blocked VAT Bank Account and VATCoin, promise to eliminate the possibility of the embezzling of VAT by physically securing the VAT collection. Although these methods have been proposed primarily for B2B transactions, they can also be used in B2C and B2G transactions. iii All split payment systems eliminate cash flow advantage for taxpayers in the current system. Therefore, it is natural to expect a significant drop for the incentive to use fictitious invoices, which also means less fraud, less tax audit and more tax revenue. Other expected advantages are to accelerate VAT refunds and to make the refund of deferred VAT possible. The refund of the deferred VAT's stock may also be possible by careful design. The prominent disadvantage of this approach, however, is that it may also create serious negative cash flow effectsfor taxpayers. Blocked VAT Bank Account and VATCoin methods emerge as ideal methods among the options since they reduce the negative cash flow effect by enabling taxpayers to use the VAT they collected from their sales to pay their input VATs. For a successful implementation of the new system, most importantly, design elements are key. First, it should be mandatory for all registered taxpayers. In addition, its scope must be as broad as possible. All of B2B and B2G transactions and even B2C transactions should be in the scope. On the other hand, since the marginal benefit of the system will be maximum for the administration, it should bear the cost of the new system, and the system should be simple and costless for taxpayers as much as possible. Finally, the taxation point should not be changed -from the invoice issuance date to the payment date- in the new system in order not to create a deviation from the modern VAT logic. For this reason, the VAT amount in an invoice can be treated as a distinct payment. Lastly, the introduction of a real-time securing method for VAT collections will be the biggest reform that will take place in Turkey's VAT history after the VAT's own introduction. Therefore, the necessary workforce and work-time should be carefully planned and allocated to the process. A task force consisting of officials from Turkish Revenue Authority (TRA) and Turkish Tax Audit Board (TTAB) should be established to fulfill the required preparatory technical, administrative and legal works. In addition, a detailed technical analysis regarding the design features of the new system should be carried out by thistask force. In this regard, the new tax refund implementation features like scope, terms, periods and timing should be primarily and carefully studied and determined since the cash flow effect of the new system may be the most sensitive issue in terms of taxpayers.
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