Taxman to business: not your enemy

Photo: Liis Treimann

Tax Board director-general Marek Helm expects increased cooperation from private sector, underlining that entrepreneurs need not view them as antagonists.

In which areas does Estonia have its worst tax fraud problems?

VAT would be first. Yearly, value-added tax failed to be collected amounts to over €220m, in our estimation. That makes more than a half of the total tax hole. Next in line comes deceit with labour taxes and excises.

How do you intend to improve the VAT collection situation?

The main change will be renewal of VAT system checking. The current one is close to ten years old, created when bulk of the declarations came on paper; and now, all information forwarded electronically, the checking is still paperwork.

Starting next July, we should have a system where both buyers and sellers automatically send us information on over €1,000 transactions, as part of declarations.

Right now, we do manual work, asking for information on transactions; in the future, information will be exchanged automatically. From that, we expect a great change when it comes to VAT receipts. Being conservative, the development might earn us €30m of extra income a year.

The state is pained by the fuels sector. What kind of fraud is most prevalent, there?

Like in other sectors, the main damage comes by VAT fraud. Concerning excise fraud, we have been talking about specialty and unconventional fuel-like mineral oils imported to Estonia. The fraud being that, to such oils, excise does not apply.

It is planned to amend laws so as to equip customs officials with more powers to arrest such goods, and tax them if needed.

Regarding envelope wages – are the main problem areas the same?

That happens where cash moves, and companies are geared towards VAT fraud, concealed turnover. The «gain» from tax fraud tends to be used for envelope wages. 

Traditionally, construction is problematic. Also, we have performed fresh analysis on furniture production, where wage differences between producers are huge. As also acknowledged by the sector itself.

What do you intend to do to tackle that?

One way forward will be employees’ register. Before a new employee starts working, the entrepreneur informs Tax Board; we, in our turn, will share the information with national Social Insurance Board, Health Insurance Fund and Unemployment Insurance Fund (Töötukassa).

I believe that will raise tax awareness and employees will be showing more interest, hopefully. 

Have you noticed, in any sector, average wages rising and envelope wages decreasing?

Quarter-on-quarter and year-on-year, it is improving; even so, in construction, the average declared wages still hover around €600.

I doubt anyone would get a builder working for €600, four weeks straight. I dare say that in construction, envelope wages are huge.

The measures planned require increased resources...

We have a staff of 1,500, almost. The new strategy, starting this year, will not be to increase that; rather, we will try to do things differently. 

Mainly, we will be investing in IT-development. The main anti-fraud weapon is information. While the new VAT-system has been criticised – more bureaucracy, they say – in reality it’s the other way round: exchange of data with entrepreneurs becomes easier; on the basis of improved data, our checks will be more effective.

The latest criticism is that Tax Board hand is becoming too heavy.

It is extremely positive that a large part of business community is now treating the black economy as something that needs to be dealt with. I think the entrepreneurs increasingly expect that envelope wages and VAT fraud be tackled. Meanwhile, some businessmen still think that tax fraud is Tax Board’s problem, only. 

We need entrepreneurs’ support in fighting fraud. Entrepreneurs know the peculiarities of their sector, they do «smell» where the fraud lies. Talking about Finland, for instance: there, the private sector is much more active, proposing measures to cut black economy.