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The tax authorities should improve VAT control procedures

An audit conducted by the Office of the Auditor General (OAG) has shown that the government could be missing out on significant VAT revenues. - More efficient control procedures are important both for securing State revenues and to ensure that regulations are followed uniformly, says Auditor General Jørgen Kosmo.
Published 6/11/2013 10:10 AM

Document 3:11 (2012–2013) The Office of the Auditor General’s investigation of tax authorities’ VAT control procedures was submitted to the Storting, Norway’s parliament, on 11 June 2013.

In 2012, assessed VAT totalled NOK 221 billion – a figure which comprised approx. 30 per cent of total tax revenues from Mainland Norway. The Norwegian Tax Administration received 1.6 million VAT returns this year, and the Customs and Excise Administration processed 5.2 million import declarations.

It is up to businesses to declare the taxes that should be paid or disbursed, entailing significant risk of both unintended and intended mistakes on the part of the party subject to VAT.

The objective of the audit was to assess how the tax authorities’ control procedures contribute to correct assessment of VAT. The audit covers the period 2010–2012. The OAG states that the Norwegian Tax Administration and the Customs and Excise Administration’s methods of automatic selection of returns and declarations for inspection involve significant manual work. In the Norwegian Tax Administration, approx. 100 000 returns stopped in the automatic checks must go through manual selection before approx. 10 000 of the returns are selected for inspection. In the Customs and Excise Administration, approx. 750 000 declarations are stopped in automatic checks annually. Based on manual selection, approx. 150 000 of these are subject to closer investigation.

- Such a manual selection process wastes resources. It also entails a risk that many returns and declarations that should be checked, aren’t. The Norwegian Tax Administration and the Customs and Excise Administration should therefore implement measures which provide more efficient selection, says Kosmo.

The Norwegian Tax Administration and the Customs and Excise Administration have established cooperation schemes, but the agencies themselves recognise that simpler, more systematic exchange of information, often at an earlier date, is what is required.

- Insufficient cooperation can mean important information on possible breaches is lost, and that evasion is not discovered. The Ministry of Finance should consider how better cooperation between the Norwegian Tax Administration and the Customs and Excise Administration could be achieved, to ensure efficient controls and correct assessment of VAT, says Kosmo.

The OAG further states that the Customs and Excise Administration’s ICT systems limit efficiency in the agency’s VAT control procedures. Several systems have inadequate functionality and compatibility, making control procedures more resource-intensive than necessary and increasing the risk of mistakes.

The investigation also shows that the Norwegian Tax Administration’s use of additional tax where mistakes are uncovered during an inspection of the return, is not in accordance with the requirement of equal treatment. Annually, around 1000 cases are subject to additional tax. In one region, additional tax was imposed in 2012 in 30 per cent of checks that uncovered mistakes, while the same was true of four per cent in another region.

- The Ministry of Finance should ensure that the Norwegian Tax Administration practices equal treatment, says Kosmo.

All businesses liable to tax must be registered in the VAT register. The register must be of high quality to protect against fraud. Weaknesses in register controls which lead to errors in the register could cause unnecessary extra work further down the line. The Norwegian Tax Administration has not been able to strengthen required controls of the VAT register. The OAG recommends that the Norwegian Tax Administration consider strengthening controls and ensuring more uniform supervision of registration. The Customs and Excise Administration’s special VAT controls have increased during the period 2010–2012. There is, however, great variation in the regions’ compliance coverage, which is the percentage of controls of the total number of enterprises to declare VAT. The Office of the Auditor General points out that low compliance coverage may weaken adherence to regulations and increase the risk of evasion.

Information and guidance measures are important for ensuring adherence to the regulations. The audit also shows that the regions in the Norwegian Tax Administration measure the effects of such measures only to a small degree, and that there is great variation in measurements undertaken by the customs regions.

- The Norwegian Tax Administration and the Customs and Excise Administration should implement better measuring of the effect of information and guidance work, says Kosmo.

The Minister of Finance writes in her statement to the Office of the Auditor General that the audit may give the impression that the Norwegian Tax Administration’s and the Customs and Excise Administration’s control procedures do not work or are not prioritised in some areas, and believes this does not provide a complete picture of the agencies’ control procedures. The Ministry of Finance considers the agencies’ control procedures to be satisfactory, but recognises that some areas have the potential for improvement.

You can download the document through the link to the right.

Public institutions can order the document from the Government Administration Services, tel. (+47) 22 24 20 00, publikasjonsbestilling@dss.dep.no. Others can order it from Fagbokforlaget AS, tel. (+47) 55 38 66 00, offpub@fagbokforlaget.no.

The deferral of public access to documents prepared by or for the Office of the Auditor General in connection with Document 3:11 (2012-2013), cf. the Act relating to the Office of the Auditor General section 18 second paragraph, is hereby set aside.

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