Income declaration in two clicks and VAT refund in a week. What will the tax office in a smartphone look like
And why tax audits should become much less frequent
Together with the relevant parliamentary committee and the Ministry of Digital Transformation, the State Tax Service intends to introduce a range of services in 2023 that will allow for the maximum transfer of tax administration to the online format.
Danylo Hetmantsev, chairman of the Verkhovna Rada Committee on Finance, Taxation, and Customs Policy, told Mind about that. According to him, most of the processes related to reporting, correction of errors found in it, and tax control will be digitised. Hetmantsev also promises to minimise physical contact between taxpayers and the State Tax Service.
Mind examined the improvements promised to businesses by the tax office in a smartphone and how the administration of fees will change.
Why is this necessary at all? The development of remote public services is a trend. And not only in Ukraine. According to Statista, by the end of 2022, the E-Government Development Index (EGDI) in many Western European countries and beyond exceeded 0.9 (the closer to 1, the better). For example, Denmark has the highest index – 0.97, South Korea and Finland – 0.95%, Estonia, the Netherlands, and New Zealand – 0.94. In Ukraine, the value of this index is about 0.8.
In addition, in 2019, the Ukrainian Ministry of Digital Transformation announced a strategy according to which 100% of all public services in Ukraine will be available online by 2024. Basically, there is indeed movement in this direction. And the Diya service is proof of that.
However, there are many gaps in the very tax services. Although the migration of the State Tax Service to the online environment has a number of important advantages:
- significant reduction of time for tax administration;
- minimal human involvement in tax control, which means reduced corruption risks;
- significant decrease in the number of tax audits;
- reduced costs of maintaining the tax apparatus.
How is the State Tax Service digitising in Ukraine? In recent years, both the government and MPs have announced several times the reboot of tax administration and the digitalization of the State Tax Service.
Back in January 2018, the updated Electronic Taxpayer's Account that was abbreviated to "Electronic Cabinet" began to function. It now allows taxpayers to submit reports, correspond with the tax authorities, and track tax arrears. However, the functionality of the account is still relatively meagre, with no integration with external accounting programmes, banking services, etc.
In addition, at the same time, in 2018, representatives of the State Tax Service announced plans to introduce specialised software products (mobile applications) to access online tax services for both individuals and businesses (individual entrepreneurs and legal entities).
However, the full-fledged digitalisation of the tax service never happened. Although, this is not just the "good will" of the fiscal authorities. They are directly obliged to keep pace with technological progress by Subpar. 191.1.27 of the Tax Code, according to which the tax service must ensure the development and technical support of information and telecommunication systems and technologies, automation of procedures, and the introduction of electronic services for taxpayers.
The main problem is that there is no single ecosystem through which a taxpayer can solve all (or most) of their issues: file declarations, pay taxes, register a business entity, or initiate the liquidation of a sole proprietorship. All the functionality is scattered across different services. Some things need to be done through the taxpayer's account, some on the Diya portal, and certain services (obtaining licences or permits) still exist only in paper form.
What does the new concept of a tax office in a smartphone envisage? The digital reform of the State Tax Service and related processes will take place in several directions (based on Hetmantsev's words, since the final version of the concept has not yet been made public):
- Launching income declaration via smartphone (for both individual taxpayers and entrepreneurs).
- Creating a database of "white" and "risky" taxpayers, which will allow for differentiated tax audits.
- Redesign of the taxpayer's account and its integration (via API) with external services and banks.
- Possibility to delegate the administration of individual entrepreneur's taxes to the bank (with the consent of the individual entrepreneur).
- Use of electronic excise tax with control over the movement of goods from manufacturer to supplier.
- Updating the VAT invoice registration system (Monitoring System for Risk Assessment Criteria) with a focus on potentially unreliable taxpayers.
- Optimisation of procedures related to VAT refunds and reduction of the timeframe for making a decision on VAT refunds from the state budget to 7 days.
- Creation of an updated taxpayer support centre, which will be built on the principle of call centres of the largest private companies.
How will this all work in practice? If we take the three key blocks of digitalisation – declaration, taxpayer grouping, and e-excise as an example, it will work as follows.
1. Filing a declaration using a smartphone:
- a software solution will be developed that one can install as an application. Both individual taxpayers and entrepreneurs will be able to use it;
- the declaration itself will be filled in based on the data available to the tax authorities (income, assets, etc.)
- the taxpayer will be able to check the declaration for errors by running it through special automatic tests and correct them immediately;
- after sending the declaration for verification, the STS verifies it and makes claims against the taxpayer only for those errors that he or she has not corrected in advance;
- all contacts with representatives of the tax service take place exclusively online (for example, through the messaging service built into the application).
2. Analysis of taxpayers' riskiness:
- the STS will assign a digital tax profile to each taxpayer;
- this profile will be filled in based on the taxpayer's history (payment of taxes, violations, fines, etc.);
- based on the accumulated data, taxpayers will receive green (reliable) and red (risky) statuses;
- the green status will guarantee minimal attention from the tax authorities, while the red one will be a reason for enhanced inspections and control.
3. Electronic excise stamp:
- all producers, importers, and sellers of excisable goods will be required to register in this system;
- the State Tax Service will become the main and only issuer of electronic excise stamps;
- the electronic excise stamp itself will be issued in the form of a unique QR code, which is applied to the packaging/container of the goods;
- the code will be used to track the entire path of the goods – from the manufacturer to the supplier, and then to the final consumer.
Again, we repeat that all of these algorithms and mechanisms are preliminary, as no specific developments and solutions have been made yet. Therefore, significant changes may occur in the course of their implementation and launch.
What can hinder the digitalisation of tax administration? Since attempts to reform the tax service in Ukraine have been made more than once, there is no guarantee that the offered concept will also be successfully implemented. It may be prevented by:
- lack of necessary funding in the state budget;
- resistance from the tax authorities, which are used to working according to the old patterns;
- delay in the actual development and implementation of the necessary solutions;
- taxpayers' reluctance to accept new services if they turn out to be far from as convenient as they are on paper, as well as due to a general lack of trust towards tax authorities.
However, Danylo Hetmantsev has said that digitalisation is one of the main directions of the tax reform for 2023. According to him, by 2024, everything should be ready for a proper operation, and the administration itself will be even more comfortable than "...in Western Europe countries."
If you have read this article to the end, we hope that means it was useful for you.
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