VAT overhaul is now a must

Since the introduction of VAT some 60 years ago in France, the system has been widely regarded as the most equitable and fair method of taxation. The basic principle whereby only the end consumer is taxed has provided a steady source of income to governments while ultimately taxing only those who use or consume a particular product.

Over the years, the system has been a sound and effective tool against tax evasion and, being a proportional tax, those who earn more and, therefore, spend more automatically pay more. In this way no imbalances are created.

It has been noted that the revenue from VAT is not as high as expected, mainly because of the administrative costs and the burdens on the businesses, especially on SMEs, which, when one considers that these constitute about 99 per cent of all enterprises in Europe, represent a problem that has to be tackled sooner rather than later.

However, the main problem that has been plaguing European economies is the organised and professional fraud that has claimed billions of euros in illegal monies from EU governments through complex fraud systems. Topping the list of these systems is carousel fraud and it is now high time we find ways and means to curb this blatant abuse. To do so, however, we have to give EU governments the right tools to help them fight this abuse.

As it stands today, we have a VAT system that has been in place for 17 years and is still being described as provisional, with many promises of moving onto a new system that have not materialised. We cannot go on like this. The process of introducing a new system will be a long one and unless we are determined to overcome the obstacles we are bound to face another status quo.

At a time when the Organisation for Economic Cooperation and Development is pushing for indirect taxation instead of the traditional methods, it is imperative that we set up a new, robust and efficient VAT system that will be not only simpler but will ease the administrative and compliance burdens that SMEs already have to shoulder.

We have arrived at a stage when, due to the complexity of the present systems, some enterprises prefer doing business with third parties outside the EU as this poses less of a problem for them, this when we are supposedly transacting in a Single Market environment.

This scenario is far from healthy and unless rapid action is taken I am afraid it is bound to deteriorate further. What we surely need is more transparency and cooperation between national governments and to establish a broad-based VAT system.

We need to share technologies and information and form a united front against fraudsters.

Unfortunately, the VAT issue lacks political support and this has undermined the efficiency of the system, resulting in the collection of less revenue which, ultimately, leads to governments imposing more direct taxation. The bottom line is that it is the consumer, the man in the street, the average worker that is paying more due to lack of commitment from policymakers.

We often speak about creating a better environment to live in, a better future for the generations to come and this is one of the times that it is important to stand up and be counted. I am sorry to say that some legislators have become complacent and regard the problems posed by fraud as a given and do little or nothing to change the situation. This mentality has to change.

My report on this subject will surely be met with some scepticism but I am sure that if we manage to share the burden and contribute positively we will surely find a method to implement a VAT system that is more harmonised, less complicated and less burdensome and, most importantly, a system that is more efficient and more foolproof than the one we have at present.

Having said all this, we also have to keep in mind that it is the consumer that is paying and we are bound to ensure that the tax paid will go where it should. We are analysing various systems, such as the central VAT monitoring system, the data warehouse model and the certified taxable person model.

All the systems have their pros and cons and choosing the most efficient will not be an easy task. I am sure, however, that if there is political will and commitment we will come up with a solution that will deliver the goods.

The author is a Nationalist member of the European Parliament.