Identifying the problem
As mentioned in the VAT Report 2018, countries across the EU are losing billions in VAT revenues. This is analysed through the VAT Gap, the difference between the expected and the actual VAT revenues, and some of the main causes for it are fraud and tax evasion.
In the case of Poland, “VAT represents the country’s biggest source of revenue, accounting for around 40% of the country’s budget”, stated the director of the Polish Institute of Economics, Piotr Arak. The size and stability of this tax are crucial to a responsible financial policy and an increase in the VAT Gap means less money for public services.
Between 2006 and 2011, the VAT Gap in Poland grew massively, going from 0.4% to 1.5% of GDP. For many years this was a warning measure, especially because the European Parliament noted that this gap, not just in Poland but across the EU, meant that fraudulent VAT refunds were being used to fund terrorism.
Poland’s solution and results
Aware of the scale of this problem, Poland has been strengthening the tax system since 2015 within a Strategy for Responsible Development. In mid-2016, the Ministry of Finance announced a complex plan to reduce their VAT Gap to around 15% of potential revenue in the 3 following years. That target was reached significantly earlier. As the Polish Economic Institute reveals in the report Reducing the VAT gap: lessons from Poland, the success of this plan was based on modern legislation, effective administration and intensive cooperation with businesses.
The implementation of JPK was one of the steps of this multifaceted plan. As of July 1, 2016, large enterprises have had the duty of submitting VAT records in a Standard Audit File for Tax (SAF-T), or Jednolity Plik Kontrolny (JPK) in Polish, on a monthly basis. This has also been the case for small and medium enterprises since January 2017. This file is in a XML format and is often called Single Control File.
In 2017, the National Revenue Administration, Krajowa Administracja Skarbowa (KAS) in Polish, was established as a new unit and a successful strategic move. They created an effective tax administration, based on cooperation and consolidation of different services. KAS was then equipped with modern analytical tools that set the foundation to implement JPK files completely. Additionally, the security and effectiveness in detecting irregularities or fake invoices have increased because a complex software analyses the JPK files and notifies problems. To make these powerful tools work, KAS had the cooperation of the IT and banking sectors, which enables constant improvements.
Poland’s plan came to fight against tax fraud and the results are visible. Since January 2018, 1.6m entities have reported these files online every month and there is a systematic decrease in the number of taxpayers not filing JPKs. Besides that, the country’s VAT Gap has decreased significantly in the last few years. According to the European Commission, it was 23.9% of potential revenue in 2015, then went down to 20% in 2016, and reached around 14% in 2017.
Main lessons from this example
This example shows that investing in certain tools, with the right partners and cooperation of several businesses can have a noticeable impact on fighting against tax fraud and decreasing the VAT Gap. Poland managed to increase tax refunds neither by raising tax levels nor at entrepreneurs’ expense. Also, in the long run, tax morality and compliance of taxable people can increase, once the additional revenue from taxes benefits them, for example through improvements in public services.
Apart from that, companies also benefited from this because it simplified the process of mandatory reporting of invoicing data.
What is next for Poland?
A new scheme of monthly SAF-T submissions for VAT is expected and it will be called JPK_VDEK. It was thought to be implemented for no later than this year, but has recently been postponed for 2020. The aim is to simplify the fillings for VAT by submitting only one file that will have both a record and a declaration purpose. This file will include a summary of the VAT payable, the amount to be refunded and the amount to be carried to the following periods.
How can we help you?
We have a long history of collaboration with the Portuguese Tax Authority, having worked in several e-government projects. SAFTPRO is a software designed to address fraud and tax evasion. It collects and processes SAF-T files to provide information to Tax Authorities. You can find out more about its key features here.