Successful implementation of EFDs
14 July 2015
Electronic tax administration is claimed to improve tax compliance and collection. A number of countries worldwide have thus made the transition from paper-based to electronic methods. In their paper on the impact of Electronic Fiscal Devices (EFDs) on taxpayer compliance and administrative efficiency, Peter Casey and Patricio Castro analyze the possible reasons why the implementation of such devices has not yielded the expected results in some countries.
In Greece, Tanzania and Kenya, for instance, compliance problems seem to be the reason for these mixed results. In Greece particularly, traders simply choose not to use the EFDs or find ways to tamper with the data. In Kenya, they complain about the high purchase price of the devices and about the inadequacy of the support and maintenance services. But the issue all three countries seem to have in common is the lack of an effective compliance monitoring and support strategy.
In other parts of the world, on the other hand, EFDs have received glowing reports from the authorities. Revenu Québec, the tax authority of the Canadian province, reported impressive results following the implementation of the Resto Project. This initiative aims at curbing tax fraud in the restaurant industry by imposing the use of sophisticated sales-recording modules (SRMs).
Implemented from 2008 to 2011, the Resto Project allowed the government of Quebec to collect in excess of $160 million, or $60 million more than expected, between 2011 and 2012. By way of comparison, in 2008 and 2009, the tax leakage in the catering industry was estimated at $425 million annually. Furthermore, projections indicate that by 2018-2019, Revenu Québec will have recovered a total of $2.4 billion in consumption taxes and income taxes that would otherwise have remained unpaid by restaurant owners. In addition to the recovered revenue, the Resto Project cut inspection costs by 96%, and the duration of inspections from 70 to 3 hours.
So what did Revenu Quebec do differently to achieve such remarkable results? According to the authority’s official report[1], the key success factor was the establishment of a relationship of trust with the restaurant owners. Revenu Québec endeavored to minimize the repercussions the project might have had on their business. Looking back at the Greek, Kenyan and Tanzanian examples, it seems fair to argue that the EFDs would have been more readily accepted by the taxpayers if the tax authorities had provided them with the same level of support.
The approach of Avatar Technologies, a company founded by Global Voice Group (GVG), to the monitoring of tax compliance is similar to that of Revenu Québec. Avatar seeks to win over the taxpayers by making compliance easy, affordable and rewarding for them. The taxpayers who make use of Avatar Technologies’ EFD solution benefit from 24/7 in-country customer support and are given free access to several value-added services, such as AvatarBooksTM, a fiscally compliant accounting and tax management application.
But what gives Avatar Technologies’ EFD solution the edge is crowdsourcing. Unlike other solutions, it involves the consumers in the compliance process by rewarding those who make a point of claiming their tax invoice. A Fiscal Lottery program was integrated into the solution specifically to serve this purpose. Avatar therefore takes a holistic approach to tax compliance, which takes into account both the technological and human aspects.
Read the whole paper: http://www.imf.org/external/pubs/cat/longres.aspx?sk=42820.0
[1] The Resto Project – Mandatory Billing in the Restaurant Sector, Revenu Québec, May 2012