The board aims to get a complete overview of how motor fuel moves on the market, what happens where it is stored, as well as the make-up of purchase and sale chains.
Even though fuel sector tax evasion has been cut down considerably over the past seven-eight years, the state is still missing around €50 million in taxes annually.
Fraud difficult to discover
Deputy head of the board's control department Kaido Lemendik said that the main reason behind missing taxes is fuel from unknown sources reaching the market: the fuel is authorized for use at the excise warehouse and is then moved to storage and mixed with so-called dirty fuel. Next it will make its way to the consumer via gas stations.
„Dirty fuel could be brought to Estonia illegally from other countries, or it could be illegally mixed in Estonia using waste, among other components,“ Lemendik said.
Right now information on how fuel moves in Estonia reaches the tax board in hindsight, which makes it very difficult to uncover fraud. Fuel retailers have to file a monthly income tax return annex listing the seller. „In cases where the origin of the fuel is unknown, annexes are not filed. Retailers' liquid fuel report makes it impossible to ascertain the source of fuel,“ Lemendik said.
When fuel from an unconfirmed source reaches the market, the board cannot be sure of its conformity. The board has discovered six gas stations that sold mixed fuel this year alone. „It is a considerable number as these gas stations sell fuel to a lot of consumers. We can say in summary that the gasoline we found had an incorrect octane rating, while the flash point was off in case of diesel fuel.“
Because these kinds of schemes are only discovered after the fact, the board is working on a so-called fuel handlers' database or e-environment where retailers would have to list all of their mutual transactions of purchase and sale. The reporting obligation would only concern transactions between fuel sellers.
„Nothing needs to be entered into the database when a wholesaler sells fuel to an agricultural company for example,“ Lemendik specified. „This would mean the e-environment would hold information on sale of all fuel authorized for use and make it impossible to trade in illegal fuel in the current manner,“ Lemendik said.
The board is currently working on the software, with ease of use set as a priority.
This manner of blanket supervision could mean additional workload for fuel companies. Head of Neste Estonia Ivar Kohv said that while administrative burden will grow, the potential benefits of the system outweigh that fact.
„We believe this will help contain tax fraud and tidy up the market. The system should also make life easier for fuel sellers by making data on how fuel moves available in real time,“ he said.
The tax board is also planning to change fuel companies' deposits system. The latter intent is worrying smaller companies. „I believe this whole thing has been blown entirely out of proportion,“ said owner of Euro Oil AS Aare Kaur.
He said that the new deposits system will squeeze smaller market participants. In a situation where major retailers can just put down a million euros that will allow them to move unlimited qualities of motor fuels, smaller companies would make payments based on amounts sold over two months.
Deposit to hit smaller players
„It is a one-off payment; however, it may prove too much for several small retailers,“ Kaur said. He added that the new system would cost Euro Oil around €700,000. „At the same time, we have already paid input VAT on that fuel; it has not fallen into our laps from heaven.“
Kaur said that the aim of the deposits system is to keep fraudsters looking to make a quick buck away from the fuel market. „We have been active for years, and the board should have a measure of trust in us.“
Smaller retailers also do not understand the need for real-time supervision. „What will it give them? We are already filing declarations monthly, and fraud is next to nonexistent,“ Kaur said, adding that filing each and every transaction would mean a lot of work for the company.
The tax board hopes to launch the e-environment in the second half of next year. The new deposits system would take effect in early 2019.