Amount of VAT violations doubled on year

Most common types of tax evasion remain the payment of cash-in-hand wages, hiding turnover and using fictitious purchase invoices. Photo: Toomas Huik

The revenue from value-added tax (VAT) to the Estonian state budget has significantly increased due to high inflation, however, the amount of violations has doubled simultaneously.

In the first seven months of this year, the Tax and Customs Board inspected and advised 5,000 companies. As a result, the originally declared VAT obligation of these companies was increased by 35.8 million euros. This is twice as much compared to the same period last year and six million euros more than during the entire last year.

According to Kristi Veskus, head of the VAT department at the Tax and Customs Board, most errors were detected in VAT refund claims, which companies had to correct more than 900 times, amounting to a total of 18.4 million euros.

«Even though baseless VAT refund claims have increased this year, our risk models identify them effectively. Therefore, it is inadvisable to hope that such fraud will go unnoticed by us,» Veskus pointed out.

Veskus explained that the most common types of tax evasion remain the payment of cash-in-hand wages, hiding turnover and using fictitious purchase invoices. Such violations have been identified in 300 companies in the first seven months of the year. Their tax liabilities were increased by a total of 4.2 million euros.

This year, the Tax and Customs Board is focusing on violations related to real estate transactions, causing an estimated annual VAT loss of 9.3 million euros. The main violations in these cases are failing to declare turnover from real estate sales and unjustifiably submitting refund claims for residential properties purchased under the name of the company but not used for taxable business activities. Violations related to real estate transactions were identified 136 times in the first seven months, amounting to a total of 2.5 million euros.

The Tax and Customs Board also continues to pay close attention to companies that have not registered as liable to pay VAT but with regard to which there is reason to believe that they might have reached the VAT taxpayer registration threshold and incurred a VAT liability, but have not fulfilled these obligations. Additional tax obligations were imposed on such companies within the first seven months of 2023 to the tune of one million euros, 14 percent more than the same period last year.

As of the beginning of 2023, the Tax and Customs Board has detected nearly 20,000 entrepreneurs whose declared data has potential VAT risks and who are estimated to cause a tax loss to the state totaling 94.4 million euros.