The Tax and Customs Administration’s Enforcement Policy
At the request of the House of Representatives, we have audited the enforcement policy implemented by the Tax and Customs Administration. Our audit included an examination of the results of risk-based checks. We also considered whether the tax gap, the difference between the taxes payable by law and the actual tax receipts, could explain how effective enforcement policy is. We further considered a number of case studies. Our audit was concerned with whether the Tax and Customs Administration had a grip on non-payers (people with little if any declared income but a high expenditure pattern or affluent lifestyle), tax nomads (people who have their particulars removed from the population register in order to remain out of sight of the tax authorities) and migrants who do not pay motor vehicle tax.
Conclusions and recommendations
- We are positive about the preventive nature of the Tax and Customs Administration’s current enforcement policy. However, the Administration still lacks information necessary to substantiate the decisions it makes in its enforcement policy. In particular it does not have an insight into the costs and benefits of its enforcement tools, although it has taken measures to improve this insight. We therefore recommend that the State Secretary for Finance continue to implement these measures and evaluate the effectiveness of the enforcement tools.
- Targeted checks to identify high-risk tax returns are more effective and efficient than checks that are not risk based. The random sampling of tax returns, however, remains necessary.
- We recommend that the State Secretary determine the optimal capacity the Administration needs to work effectively and efficiently and explain what the benefits would be of additional capacity. The potential impact on tax morale should be one of the factors taken into account.
- For supervisory purposes, the Administration also requires counter-information from external sources. There is currently inadequate oversight of the sources of such information. We therefore recommend that the State Secretary determine where and how the Administration could strengthen its information position.
Case study of non-payers, tax nomads and migrants
Our case study found that the Tax and Customs Administration had little grip on potential non-payers and tax nomads. It is difficult for the Administration to enforce the payment of motor vehicle tax by migrants owing to loopholes in the law. The number of migrants who do pay motor vehicle tax, however, has probably been increased by the Administration’s preventive approach.
- We recommend that the State Secretary for Finance prepare an annual list of potential non-payers. By analysing this list the Administration could then pick out and approach the true risk cases.
- The Administration sometimes identifies tax nomads by taking part in initiatives to combat address fraud. We recommend that the State Secretary continue to work with other parties in this area, such as the municipalities.
- We recommend that the State Secretary continue the current preventive approach to encourage migrants to pay motor vehicle tax. He could inform migrants by letter of their duty to pay the tax and systematically follow up those who do not respond.
The tax gap is the difference between the taxes payable by law and the actual taxes received. One of its components is the ‘dark number’, the taxes due that the Administration is completely unaware of. Apart from the VAT gap, the Administration has no idea of the total size of the tax gap because neither the dark number nor the compliance deficit of large corporations has been estimated.
- We recommend that priority be given to the preparation of an annual estimate of the tax gap and to analysing collection losses and compliance deficits. The estimate should be as reliable as possible and also cover the compliance deficit of large corporations.