VAT lottery bears first fruits
19 May 2014
Early calculations by state economists show that the real impact of the receipt lottery on the collection of value-added tax will be some €8 million a year, just a fraction of the income that already goes into the state’s coffers. Analysts, however, say that using the lottery to boost tax revenue is secondary to raising awareness of paying taxes and encouraging people to ask for receipts, says Martin Filko, head of the Financial Policy Institute (IFP), which is run by the Finance Ministry.
“Our aim was to spread the idea that it is normal to pay taxes and not to avoid them,” Filko told the press on May 12.
The National Receipt Lottery, launched on September 16, 2013, encourages Slovaks to collect receipts from their purchases in shops and restaurants and for services and enter them into a national lottery, with the possibility of winning thousands of euros. So far, nearly 65 million receipts from 450,000 people worth €774 million have been registered.
The lottery’s creators, when introducing it in August 2013, said it would curb VAT evasion estimated at hundreds of millions of euros per year, mostly through its educational potential.
In addition to encouraging people to ask for receipts, the lottery helps to reveal fraudulent practices among entrepreneurs. If customers cannot register a receipt from a shop or vendor, they can file a motion with the Financial Administration (FA), which will inspect the premises and its cash register. The number of such motions increased from 298 between March and August 2013 to 5,765 between September 2013 and April 2014, according to data the FA provided to The Slovak Spectator.
Patrícia Macíková, spokesperson for FA, said that fewer entrepreneurs are trying to skirt the law on the use of electronic cash registers.
By issuing a valid receipt, entrepreneurs confirm that they are running their business honestly and that they are not trying to deceive their customers, Rastislav Čépe, spokesperson for Tipos, the state-run company that runs the lottery, told The Slovak Spectator.
Lottery as a supportive measure
According to Filko, it is very hard to assess the benefits of the receipt lottery on VAT collection. The state imposed several measures to fight tax evasion that contributed to an annual increase in VAT revenues by €289 million in 2013. This may be the result of a combination of these measures, Filko explained.
“The lottery is, first of all, a successful popularisation tool, which massively promotes other very successful tools that improve tax collection in Slovakia,” Filko added.
The first estimates, which the IFP based on comparing the increase in sales of retail trade and restaurants in the third and fourth quarter of 2013, show that the receipt lottery could contribute some €7-8 million a year. This may, however, change when the IFP receives more information.
Matúš Pošvanc, an analyst with the F. A. Hayek Foundation, also considers the lottery a supplementary measure that will “discourage some entrepreneurs from avoiding taxes”.
“The effective measures in the area of tax collection should aim to fight against big [tax] dodgers,” Pošvanc told The Slovak Spectator.
How to “play”
To register a receipt with the national lottery the purchase has to be at least €1, and the receipt cannot be older than two months.
Most of the receipts registered before April were issued by retail stores, especially big retail chains, followed by wholesalers (excluding motor vehicle repair), accommodation and food services. The most receipts per capita were registered in Košice Region (42 per person in one drawing), while the fewest were registered in Prešov Region (21 per person in one drawing), according to the IFP report.
Some retail and service providers enter the receipts to the lottery automatically (the list can be found at the lottery’s website), while other receipts must be registered via the internet, mobile phones or at Tipos booths.
Each receipt entered has three chances to win. The first drawing takes place every 14 days with the winning sums ranging from €10,000 for the first prize down to €100 for the 10th. In total, €20,000 in prizes can be won in one drawing. The so-called second-chance drawing occurs every 28 days, with eight winners drawn, one from each of Slovakia’s regions. Winners receive a cash prize of €10,000 or goods worth the same value. Lottery winnings are not subject to taxation, according to the lottery website.
As of December 2013 there is also the third-chance drawing, which occurs every 28 days, with 150 winners and 150 stand-ins. Unlike the previous drawings, participation in this one is not automatic and people have to re-register. Those whose names are drawn then attend a TV show in which they can win various prizes. One person drawn during the show will win an extra prize worth several thousand euros, the lottery website reads.
The highest number of receipts was registered in the very first drawing: more than seven million by about 252,000 people. Since then the number of receipts and participating players, gradually decreased and has stabilised at about three million receipts, Filko said.
Pošvanc assumes that the lottery’s popularity will decrease slightly. Because of the upcoming election years the government will spend more money, which may discourage people, as the state debt will probably not decrease, he explained.
To improve the effects of the lottery and increase the number of participating sellers, especially smaller ones that are more likely to dodge taxes, the IFP is proposing several measures. One of them is to offer new products that will increase the attractiveness of registration of receipts from small premises in retail and restaurants, for example through increasing the value of prizes in the second-chance drawing. The IFP also suggests registration of invoices which are mostly used in transactions in services. It, however, faces many technical problems, Filko said.
Another proposal calls for more effective and more analytically sophisticated use of information on non-registered cash registers that people send to the FA.
“This is something that may contribute to better collection of taxes in Slovakia the most in the future,” Filko said.
Source: Slovak Spectator